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NDEX

larch 1987
olume87, No. 2120

fghanistan. State of the Union Address

(Reagan) 5

Frica. Secretary Visits Bermuda and

Africa 23

■ms Control

•ms Control: The East Asian and Pacific

Focus (Rowny) 37

;velopments in NST Issues After Reykjavik

(Nitze) 33

eeting of NATO's Special Consultative

Group (chairman's statement) 46

arth Atlantic Council Meets in Brussels
(Shultz, final communique, declaration) . 42
jclear and Space Arms Talks Resume

Round Seven (Reagan) 36

le Nuclear and Space Negotiations:
Translating Promise to Progress (Nitze) 29
'Cretary's Interview on "Meet the

Press" 20

ate of the Union Address (Reagan) .... 5

mgress

?velopments in NST Issues After Reykjavik

(Nitze) 33

le Foreign Affairs Budget Crisis: A Threat

to Our Vital Interests (Shultz) 7

ate of the Union Address (Reagan) .... 5
imeroon. Secretary Visits Bermuda and

Africa 23

>sta Rica

>sta Rica-A Profile 57

sit of Costa Rican President (Arias,

Reagan) 56

)te d'lvoire. Secretary Visits Bermuda and

Africa 23

spartment & Foreign Service

le Foreign Affairs Budget Crisis: A Threat

to Our Vital Interests (Shultz) 7

structions to Ambassadors on Chain of

Command (Reagan, Shultz) 40

ist Asia. Arms Control: The East Asian

and Pacific Focus (Rowny) 37

:onomics. Secretary Visits Bermuda and

Africa 23

>reign Assistance. The Foreign Affairs
Budget Crisis: A Threat to Our Vital In-
terests (Shultz) 7

uman Rights

srth Atlantic Council Meets in Brussels
(Shultz, final communique, declaration) . 42
iviet Repression of the Ukrainian Catholic

Church 47

N General Assembly Review for 1986 . . 52

itelligence Operations

le Foreign Affairs Budget Crisis: A Threat

to Our Vital Interests (Shultz) 7

dependent Counsel to Investigate Arms

Sales to Iran (Reagan) 6

orth Atlantic Council Meets in Brussels
(Shultz, final communique, declaration) . 42
;cretary's Interview on "Meet the

Press" 20

:ate of the Union Address (Reagan) .... 5
.S. Interests in the Persian Gulf (Shultz) 19

Iraq. U.S. Interests in the Persian Gulf

(Shultz) 19

Israel. Secretary's Interview on "Meet the

Press" 20

Kenya. Secretary Visits Bermuda and

Africa 23

Lebanon. U.S. Passports Invalid for Travel

to Lebanon (Department statement) ... 51
Liberia. Secretary Visits Bermuda and

Africa 23

Libya. Practical Measures for Dealing With

Terrorism (Bremer) 1

Middle East. U.S. Interests in the Persian

Gulf (Shultz) 19

Mongolia. U.S. and Mongolia Establish

Diplomatic Relations (Shultz, final

communique) 41

Narcotics. The Foreign Affairs Budget

Crisis: A Threat to Our Vital Interests

(Shultz) 7

Nicaragua

Independent Counsel to Investigate Arms

Sales to Iran (Reagan) 6

Nicaragua: The Moral and Strategic Stakes

(Shultz) 14

North Atlantic Council Meets in Brussels

(Shultz, final communique, declaration) . 42
Secretary's Interview on "Meet the

Press" 20

State of the Union Address (Reagan) .... 5
Nigeria. Secretary Visits Bermuda and

Africa 23

North Atlantic Treaty Organization
Meeting of NATO's Special Consultative

Group (chairman's statement) 46

North Atlantic Council Meets in Brussels

(Shultz, final communique, declaration) . 42
Pacific. Arms Control: The East Asian and

Pacific Focus (Rowny) 37

Passports. U.S. Passports Invalid for Travel

to Lebanon (Department statement) ... 51
Philippines. Secretary's Interview on "Meet

the Press" 20

Presidential Documents

Independent Counsel to Investigate Arms

Sales to Iran 6

Instructions to Ambassadors on Chain of

Command (Reagan, Shultz) 40

Nuclear and Space Arms Talks Resume

Round Seven 36

State of the Union Address 5

Visit of Costa Rican President (Arias,

Reagan) 56

Publications

CSCE Semiannual Report 92

Department of State 93

GPO Sales 92

Refugees. The Foreign Affairs Budget Crisis:

A Threat to Our Vital Interests (Shultz) 7
Security Assistance. The Foreign Affairs

Budget Crisis: A Threat to Our Vital Inter-
ests (Shultz) 7

Senegal. Secretary Visits Bermuda and

Africa 23

South Africa. Secretary Meets With ANC

Leader Tambo (Department statement). 28
Syria. Practical Measures for Dealing With

Terrorism (Bremer) 1

Terrorism

The Foreign Affairs Budget Crisis: A Threat

to Our Vital Interests (Shultz) 7

Practical Measures for Dealing With

Terrorism (Bremer) 1

Secretary's Interview on "Meet the

Press" 20

U.S. Passports Invalid for Travel to Lebanon

(Department statement) 51

Trade. State of the Union Address

(Reagan) 5

Travel. U.S. Passports Invalid for Travel to

Lebanon (Department statement) 51

Treaties. Current Actions 90

U.S.S.R.

Arms Control: The East Asian and Pacific

Focus (Rowny) 37

Developments in NST Issues After Reykjavik

(Nitze) 33

Meeting of NATO's Special Consultative

Group (chairman's statement) 46

Nicaragua: The Moral and Strategic Stakes

(Shultz) 14

North Atlantic Council Meets in Brussels

(Shultz, final communique, declaration) . 42
Nuclear and Space Arms Talks Resume

Round Seven (Reagan) 36

The Nuclear and Space Negotiations:

Translating Promise to Progress (Nitze) 29
Secretary's Interview on "Meet the

Press" 20

Soviet Repression of the Ukrainian Catholic

Church 47

State of the Union Address (Reagan) .... 5
United Nations. UN General Assembly

Review for 1986 52

Western Hemisphere. Democracy in Latin

America and the Caribbean: The Promise

and the Challenge 58

Name Index

Arias Sanchez, Oscar 56

Bremer, L. Paul, III 1

Nitze, Paul H 29, 33

Reagan, President 5, 6, 36, 40, 56

Rowny, Edward L 37

Shultz, Secretary 7, 14, 19, 20, 23, 40, 41, 42

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Department

IW of State jm l| j ^

bulletin

The Official Monthly Record of United States Foreign Policy / Volume 87 / Number 2121

April 1987

Middle East/49

Economics/22
Human Rights/37

Western Hemisphere/54

Department of State

bulletin

Volume 87 / Number 2121 / April 1987

Cover: President Reagan with Israeli
Prime Minister Shamir.

(White House photo by Pete Souza)

The Department of State Bulletin,
published by the Office of Public Com-
munication in the Bureau of Public
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foreign policy. Its purpose is to provide
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should not necessarily be interpreted as
official U.S. policy statements.

GEORGE P. SHULTZ

Secretary of State

GEORGE B. HIGH

Acting Assistant Secretary
for Public Affairs

PAUL E. AUERSWALD

Director,

Office of Public Communication

NORMAN HOWARD

Chief, Editorial Division

PHYLLIS A. YOUNG

Editor

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Assistant Editor

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CONTENTS

The President

1 A Quest for Excellence
(Excerpts)

The Vice President

3 Uniting Against Terrorism

The Secretary

5 Meeting America's Foreign

Policy Challenges
8 Interview on "This Week
With David Brinkley"
1 1 Pursuing an Effective Foreign
Policy

Africa

15 Visit of Zaire's President (Sese

Seko Mobutu, President
Reagan)

Arms Control

16 U.S. Arms Control Initiatives

East Asia

Korean Politics in Transition
(Gaston J. Sigur, Jr.)

Philippine Constitutional
Plebiscite (White House
Statement)

Economics

22 U.S. Trade Policy and the Trade
Deficit (Clayton Yeutter)

30 Imports from the EEC

(Proclamation)

31 Finance Ministers Meet on

Exchange Rates (Statement)

32 U.S. International Trade

(White House Statement)

Europe

33 Poland (President Reagan)

34 30th Report on Cyprus (Message

to the Congress)

34 Vienna CSCE Followup Meeting

Resumes (President Reagan)

General

35 Maintaining the Momentum in

U.S. Foreign Policy
(John C. Whitehead)

Human Rights

37 1986 Human Rights Report

Released (Richard Schifter)

38 The Reality About Human

Rights in the U.S.S.R.
(Richard Schifter)

39 Release of Soviet Political

Prisoners (Department

Statement)
42 Human Rights, the Soviet

Union, and the Helsinki

Process (Richard Schifter)
45 Czechoslovak Human Rights

Initiative (President Reagan)

Middle East

49 Visit of Israeli Prime Minister
Shamir (President Reagan,
Yitzhak Shamir, Secretary
Shultz)

51 Kidnappings in Lebanon

(President Reagan)

52 Iran-Iraq War

(President Reagan)

Narcotics

52 International Narcotics Control

Strategy Report Released

Pacific

53 South Pacific Nuclear Free Zone

Treaty (Department
Statement)

Western Hemisphere

U.S. -Mexico Binational
Commission Meets (Bernardo
Sepulveda, Secretary Shultz)

Collective Security and the
Inter- American System
(Historical Study)

A Plan for Fully Funding
NBCCA Recommendations

Treaties

86 Current Actions

Press Releases

88 Department of State

89 USUN

Publications

89 Department of State

90 Current Documents Volume

Released
90 Background Notes

Index

HE PRESIDENT

i Quest for Excellence (Excerpts)

5SSAGE TO THE CONGRESS,
N. 27. 1987'

• • • •

aping the International
onomic Environment

litmus test of whether we will be truly
petitive in the 21st century will be our
ity to meet the competition head-on— and
—in the international marketplace. The
leral government can play a key role here
lelping to shape an international environ-
it in which American knowledge, talent,
entrepreneurship can flourish.
In an increasingly interdependent world,
rency flows, foreign government policies
i respect to spending, saving and taxes,
trends in foreign investment all have a
or impact on the competitiveness of
erican firms. We must shape these factors
'ays that enhance, not inhibit, our com-
tiveness. This will require improved
lomic and monetary cooperation on a
>al scale. We will build on progress over
past year, including the new institutional
ingements we have developed both
tilaterally and bilaterally, to guarantee a
e stable and realistic value for the dollar,
roved growth abroad, and an accompany-
growth in markets for American firms.
: The developing countries, particularly
1 e in Latin America, represent new,

• vth markets of the next century. We will
Ik to ensure that these markets meet their
l potential by pressing our initiative on the
I problem, with a view toward increasing

* ate investment and encouraging the

h issary policy reforms within the develop-
a world.

My Administration has aggressively used
k funding provided in last year's "war
i t" legislation to combat aggressively

ign predatory financing practices. We will
8 s our efforts on achieving an interna-

i il agreement limiting these practices. But
lie same time, our trading partners and

1 petitors should be on notice that we will

I Dur full authorities to counter foreign sub-
I ed credit offers. To this end, we will be
I ing the additional $200 million in "war
1 1" monies promised last year.

We will not tolerate closed markets, trade
I iers, and unfair foreign subsidies that
I dvantage American firms in the world
pketplace. We will aggressively seek to

fi foreign markets through multilateral
bilateral negotiations and eliminate
o ign unfair trade practices whenever and
Irever they occur through the active use of
x trade laws.

We must ensure that the laws of the
If ing system recognize the commercial
Kities of the 21st century. We made major
p^ess this past year in securing the launch
M new round of multilateral trade negotia-
is in GATT [General Agreement on Tariffs

and Trade], We will push hard for quick
results from the Uruguay round in areas
critical to our competitive future, including
agriculture, services, intellectual property,
and investment.

We will also seek to achieve a major
market opening close to home. More trade
passes between the United States and Canada
than between any other two countries in the
world. We are now engaged in historic
negotiations with Prime Minister Mulroney's
government on a free trade agreement that
will improve commercial opportunities on
both sides of the border and serve as a model
for trade liberalization on a global scale. We
will work with the Canadians and the Con-
gress to conclude an ageement in our mutual
interests.

We will continue to assure that bribery to
gain markets is deterred with criminal sanc-
tions. However, uncertainty and ambiguity
arising from portions of the Foreign Corrupt
Practices Act serve as a needless disincentive
to American business. My Administration will
again propose amendments that eliminate
these uncertainties by clarifying the act's
"reason to know" and other provisions and
reduce its costly and duplicative accounting
requirements.

Our trade laws have proven to be effec-
tive instruments for opening foreign markets
and defending American industries against
unfair practices on the part of our com-
petitors. I will propose improvements to these
laws that will enhance our ability to meet the
challenges from abroad without erecting pro-
tectionist barriers at home. Our proposals will
emphasize opening markets through
multilateral and bilateral negotiation, not
closing them; encouraging adjustment while
providing improved relief to industries
injured by import competition; and tightening
our laws to make them more effective in deal-
ing with unfair foreign competition.

IV. International Peace
and Freedom

In the past 6 years my Administration has
pursued a foreign policy based on realism—
about the world we live in, about the nature
of our adversaries, about the need for
American leadership. To close gaps that had
opened in the past, we were obliged to under-
take a significant rebuilding of our defense
capabilities. As a result, our allies have
greater confidence in America, and the Soviet
Union is more willing to work seriously for
arms reduction.

Peace and progress, of course, depend on
much more than a sound military balance.
That is why, in the same spirit of realism, we
encourage democracy, freedom, and respect
for human rights by all nations. In this decade
democracy has been on the march. Country

after country has joined those nations where
the people rule. We have supported those
freedom fighters who bravely make sacrifices
so their nations will enjoy freedom and inde-
pendence.

The successful conduct of foreign policy
rests upon a strong bipartisan spirit in the
Congress, and close cooperation between the
legislative and executive branches. I am
pledged to continue this long-held tradition,
and hope the Congress will see the impor-
tance of doing the same. Toward that end, in
the near future, I will send the Congress a
full and comprehensive report on American
foreign policy.

East- West Relations

Last October, my Iceland meeting with
General Secretary Gorbachev brought great
progress in the area of arms reduction. There
is much work to do, and we continue to work
in this area. It is, however, only one of
several items on our agenda with the Soviets.
No fundamental and lasting progress is pos-
sible in one area of our relations without
improvement elsewhere.

My Administration is engaged in a broad
range of bilateral and multilateral arms con-
trol negotiations. Our objectives include:
deep, equitable, and verifiable reductions of
nuclear arsenals; a cooperative transition by
the United States and the U.S.S.R. to a
strategic regime based increasingly upon
defenses; verifiable limits on nuclear testing;
a global ban on chemical weapons; and con-
ventional force reductions to redress
imbalances in Europe. In each of these
negotiations, we are guided by principles of
equity, increased stability, effective verifica-
tion and strict compliance with both past and
future agreements. I look forward to meeting
again with Mr. Gorbachev to advance this
important work.

Responsible Soviet conduct abroad is
essential to a peaceful international environ-
ment. I have urged Mr. Gorbachev to
withdraw all Soviet forces from Afghanistan
and to allow genuine Afghan self-
determination, to cease support for Cuban
expeditionary forces in Africa, and to pro-
mote a withdrawal of Vietnamese forces from
Cambodia. In the absence of such actions, the
Soviet Union can hardly expect to be treated
as a respectable member of the international
community.

In the Soviet Union today there is much
talk of change. We must hope for a true
break with the past, but we see both hopeful
and discouraging signs, especially in the
critical area of human rights. Certain better-
known dissidents have been released while
others continue to receive very harsh treat-
ment; tragically, emigration remains at a
historic low, and religious persecution con-
tinues unabated. My Administration will
welcome, and respond to, positive steps
toward greater respect for human rights,

Ml 1987

THE PRESIDENT

while expressing our views on the enduring
nature of the Soviet system.

Since I met General Secretary Gorbachev
in Geneva, exchanges between our two
societies have gained momentum. I hope for
futher expansion of people-to-people contacts
in 1987.

One of the most important obstacles to
improved East-West relations, which touches
on all elements of our agenda, is the continu-
ing unnatural division of the European conti-
nent. Toward the states of Eastern Europe,
our policy of differentiation remains intact; in
particular our trade relations with them will
continue to reflect the extent of internal
freedom and foreign policy independence
from Moscow.

America in the World

The extraordinary surge of democracy that
we have seen in the past 6 years, particularly
in the developing world, benefits us polit-
ically, economically, and strategically.
Democratic transitions are nonetheless
fragile; they require constant nurturing and
careful support. This Administration will con-
tinue to work with and support those nations
that share our interests and values. By
diplomatic and other means we can help
create the peaceful environment in which free
institutions flourish.

To help create such an environment, the
Congress should support adequate funding
levels for economic and security assistance.
The year 1987 is the 40th anniversary of the
Marshall Plan, a reminder that American
commitment and generosity serve our own in-
terests while changing the course of history
for the better. Our goal is to foster peace and
stability by helping friendly nations to defend
themselves and by encouraging market-
oriented economic growth abroad. We con-
tinue to work toward the elimination of
hunger and extreme poverty for both
humanitarian and security reasons. Thus,
American interests are harmed if our pro-
grams in this area are cut by the Congress
below adequate levels, as they have been.

The advance of democracy and the
strengthening of peace are closely related.
Nowhere is this clearer than in our own
hemisphere. We must continue to provide
support and assistance to freedom fighters in
Central America. To that end I will ask the
Congress for renewed assistance for the
Nicaraguan democratic resistance, which
faces a Leninist dictatorship that has received
over a billion dollars of Soviet-bloc arms. I
also strongly support a supplemental appro-
priation for the economic development of the
Central American democracies.

State-sponsored terrorism has increased
dramatically in the last few years. When such
incidents go unpenalized, further terrorist
efforts are encouraged. We will continue to
build our capability to deter and, when
necessary, to combat swiftly and effectively
state-sponsored terrorism worldwide. In this
regard, I am requesting necessary funding to
continue the multi-year program to improve
the protection and security of our personnel
and facilities overseas.

The people of the Philippines, whose
history is closely linked with ours, acted last
year to reconfirm their democratic traditions.
We encouraged them, and applauded their
success. This year, my Administration will
seek addditional support to assist the Aquino
government, as it confronts serious economic
and security problems. The rebuilding of
political institutions and restoration of
investor confidence are Filipino goals that
America must support.

My Administration will continue to
enforce the Comprehensive Anti-Apartheid
Act of 1986. We seek an end to apartheid and
will use our influence to foster a peaceful
transition to a truly free, democratic, and
multi-racial society. We will offer a special
economic assistance program for southern
Africa. We will also seek to restructure
economic assistance to Africa so as to rein-
force positive policy reforms in a growing
number of African nations. This approach,
whose goal is to promote investment and
economic growth in Sub-Saharan Africa, is
reflected in the Administration's FY 1988
budget request.

The United States must be able to com-
municate information and ideas on a world-
wide basis. Ongoing expansion of America's
international broadcasting capability— the
Voice of America, Radio Free Europe/Radio
Liberty, and Radio Marti— must, therefore,
continue. Increased resources for the United
States Information Agency are also needed to
reach this goal. In addition, the National
Endowment for Democracy and its subsidiary
elements— including free labor, free enter-
prise, and the political parties— permit the
United States to help strengthen the infra-
structure of democracy, particularly in the
less developed countries. Funding for this
program is very small; the potential return on
our investment, very high.

In the past, the ideals of the UN Charter
have often been trampled under foot. The
United States remains committed to restoring
efficiency and impartiality to the United
Nations and effectiveness to its peacekeeping
activities. We will use our influence to restore
respect in the UN for the principles on which
it was founded.

My Administration will continue efforts to
achieve the fullest possible accounting of our
servicemen missing from the Vietnam war.
Recent progress can continue with the strong
bipartisan support in the Congress for this
humanitarian issue. Also, my Administration
is committed to aiding refugees and those
countries providing first asylum to them.
International organization support,
multilateral and bilateral programs, and
resettlement opportunities in the interna-
tional community are all required to ensure
humanitarian treatment of these homeless
and shattered peoples.

The Administration is proud of a path-
breaking agreement reached this year with
the Pacific island states over the long-
contentious tuna fishing issue, one that our
adversaries have tried to exploit. Modest but
indispensable funds are needed to meet our
obligations under the agreement.

Maintaining A Strong
National Defense

The increased resources we have devoted!
national defense in the past 6 years have n
brought many benefits— above all, a lastnl
peace. Our forces have been modernized, ft
quality and spirit of those in uniform hav<B
risen to the highest levels, and we have bran
work on new technologies that can pro tec W
America in the future and free us from tlL
nuclear balance of terror.

All these efforts must continue. We n ft
realistic and sustained growth in defense n
funding to consolidate the real gains we 1 B
made. The alternative is unacceptable: sp I
ing less will unavoidably mean less securiH
We cannot keep America strong without k
mitting the resources that this effort
requires.

In keeping with the recommendation
the Packard Commission, and as requirec
the 1986 Defense Authorization Act, I ha
submitted a 2-year national defense budg
for 1988-1989. The Packard Commission
stressed no point more than the need for
greater stability in defense funding. Rolle
coaster, surge-and-starve budgeting leads
higher costs and dangerous risks to natio
security. Furthermore, I want us to get o
money's worth from every defense dollar
spent. Under the leadership of the Secret
of Defense, with the expert help of the n«
Under Secretary of Defense for Acquisiti'
this Administration will continue to take
important strides toward improving the
acquisition system. Other major changes
DOD organization and the procurement
system have been underway, some since I
beginning of this Administration. So I ho]
the Congress will withhold further efforts
legislate defense procurement reform unt
the effect of these changes can be fully
evaluated.

Our strategic modernization program
essential to assuring our national safety i
the years ahead. The strength it provides
also the indispensable foundation for
negotiating the deep cuts we seek in nucl
arsenals. The Soviets are willing to barga
and make concessions only if they unders
that— in the absence of agreements— Ame
will provide for her own security.

Strategic Defense Initative research
explores the way to move toward a world
which effective defenses, rather than thrt
of retaliation, keep the peace. This vital p
gram reinforces our policy for arms
reductions— as an incentive for the Soviet
agree to real arms reductions and as an
insurance against cheating on arms reduc
tions agreements. The pace of research tc
date has been impressive, and I will ask tl
Congress to increase funding so that we c
continue moving forward.

My Administration will continue to m;
tain an effective nuclear deterrent, but at
same time it is essential that we and our s
modernize and strengthen conventional la
air, and naval forces so they can carry out
their missions in the face of a steadily
increasing Soviet threat. That will cost mi
money than the Congress has been willing
vote the last 2 years, but it is essential.

Department of State Bulli

THE VICE PRESIDENT

America will continue to deploy military
fees throughout the free world as proof of
Kdarity with our Allies and other friendly
rf;ions, and as a deterrent to those who

xht threaten our peace and freedom. For-
ird deployments not only underscore our
yonal policies, but also provide valuable

ercises and training for Active, Guard, and
ifeerve Component Forces.

' The Soviet Union has the world's only
.■■■rational ASAT [antisatellite] system. The
1 5. miniature homing vehicle ASAT system
It can deter the Soviets from using their
item in times of crisis is in development. Its
it program, however, has been blocked by a
jgressional unilateral ban that prohibits
ij:s against targets in space. The Soviets are
ller no such prohibition. I will continue to
1 e the Congress to lift this moratorium as
|n as possible. I will strongly oppose its
gension beyond October 1, 1987. Such
lateral restrictions on the United States
we the Soviets with capabilities that
I anger America's security.

: Keeping America strong means more
li acquiring ships, tanks, and planes. Those
1) wear the uniforms of our armed forces
r;t receive appropriate recognition for the
1-ifices and hardships that they are called
In to endure on our behalf. My Admin-
s itimi will take the necessary steps to con-
I e to improve the quality of life for those
iiniform. In this way we can retain the
I i-quality trained people serving now, all as
I nteers, and provide sufficient incentives
k ecruit the qualified people that we need in
i future.

I As we revitalize our naval forces, we face
1 need to build home port facilities that can
■•mmodate our growing fleet and to pro-
I our vital merchant ports in the least
I erable but affordable way. We must con-
me to implement and expand our strategic
I e-porting program.
I Last fall I sent to the Congress a classi-
I report on the threat to our security from
I activities of hostile intelligence services.
I report set out a blueprint of legislative
1 administrative measures to enhance our
I ty to meet this threat. I hope the Con-
1 s will act on our recommendations.
1 We must maintain the viability of our
I nology base and pursue new
Itlopments in conventional weapons
1 nology. The armaments cooperation
lative with our allies helps us to improve
I isition management, share technological
I .nces within the alliance, and enhance col-
1 ve defense. The Soviet Union should
I rd the industrial unity of the West as an
I ratable force. We must not squander our
I s through careless or felonious transfers
I chnology to potential adversaries. My
■dnistration will continue our successful
I 't to curb the theft of strategic
l°gy by the Soviet bloc.

Conclusion

year of the 200th anniversary of our
stitution affords us the opportunity to
e momentous strides in our quest for

national excellence. It will require the efforts
of all of us— not just the government, but all
the people. To achieve this greatness really
comes down to just being our best. No
government plan or program is capable of
enacting such sweeping change and reform.
All the Federal spending in the land cannot
buy excellence. It must occur as part of the
natural instinct of free people to compete for
the highest standard. The proposals and
actions outlined in this message will form the

foundation to meet the challenge of the third
American century.

I look forward to working with the Con-
gress in a bipartisan fashion in order to
achieve this worthy goal. For when it comes
to the future of America, there must be no
Republicans or Democrats— only Americans.

Ronald Reagan

•Text from Weekly Compilation of
Presidential Documents of Feb. 2, 1987.

Uniting Against Terrorism

Vice President Bush's address before
an international conference on terrorism
sponsored by Discover magazine on
January 20, 1987. l

I appreciate the opportunity to address
this important conference on terrorism.
In light of recent events and the specula-
tion surrounding the U.S. counterter-
rorism policy, you could not have
scheduled your conference at a more
appropriate time.

A few weeks ago I spoke about our
initiative toward certain factions in Iran.
And I mentioned then that a widespread
perception exists that this Administra-
tion traded arms for hostages, thereby
violating our own strong policy of mak-
ing no concessions to terrorists. When
all the facts are out, the American peo-
ple can make up their own minds on that
key question. But the American people
should also know that the President is
certain to this very day that he did not
authorize "arms for hostages."

At the same time you should know
the concern that the President feels, that
we all feel, when an American in ter-
rorist hands is tortured and, in the case
of William Buckley, killed. We will
explore every channel, run down every
lead. We will go the extra mile to free
those American hostages.

I am here tonight to reaffirm our
policy— a policy that we have built
through arduous work and courageous
example.

When we intercepted the hijackers
of the Achille Lauro and helped bring
them to justice, we took tremendous
risks on behalf of a terrorism policy that
was born of great conviction. When we
flew our bombers for hours through the
night to attack Libya's training camps,
we again put our policy on the line. It is,
therefore, with a profound sense of loss
that I view this existing perception that
we have abandoned our policy of not
negotiating with terrorists.

I believe we must reaffirm our policy
with a better understanding that there is
a very thin and delicate line between
talking with terrorists and negotiating
with terrorists. As Terry Waite [per-
sonal envoy of the Archbishop of Canter-
bury] can surely attest, searching for
ways to communicate with hostage-
takers can be a ghostly business. Out of
adversity comes opportunity. And we
now have the opportunity to restore the
credibility of our policy, give it new
meaning, and move forward with a
renewed commitment in our battle
against the terrorist threat.

Having said that, let me read three
sentences from the report on my task
force on combatting terrorism. "Ter-
rorism is a phenomenon that is easier to
describe than to define. It is the
unlawful use or threat of violence
against persons or property to further
political or social objectives. It is
generally intended to intimidate or
coerce a government, individual or
groups to modify behavior or policies."

Now let me reaffirm the policy this
Administration will follow in combatting
terrorism. Let me restate the strong,
straightforward language that continues
to guide our policy.

We do not make concessions to ter-
rorists. We do not pay ransoms. We do
not release prisoners. We do not
encourage other countries to give in to
terrorists. And we do not agree to other
acts that might encourage future
terrorism.

It was back in July of 1985 that the
President asked me to chair a cabinet-
level task force on counterterrorism, and
it was almost exactly 1 year ago this
month that we issued our report. In all,
the task force made 44 recommendations
that constituted a unified strategy for
fighting terrorism and that significantly
improved our nation's capacity for
addressing this threat.

il 1987

THE VICE PRESIDENT

The most important achievement of
the task force was to bring together the
various parts of the government to agree
to broad rules for action. We settled
festering problems of jurisdiction. We
resolved policy issues regarding the
seriousness of the terrorist threat and
the range of actions appropriate to deal-
ing with it. And we set these issues in
the context of a broader strategy— a
strategy that has brought home some big
victories.

Recent Incidents

As a result, we have made great pro-
gress in thwarting potential terrorist
attacks. While only successful terrorist
acts receive front-page coverage, I'd like
to draw your attention to some of the
attempted attacks that we've helped
prevent.

For example, in Turkey last April,
security officers arrested Libyan-
supported terrorists who were planning
to attack the U.S. Officers' Club in
Ankara during a wedding celebration.
Those arrests were possible, in large
part, because of our joint intelligence
efforts. In Paris, at about the same time,
officials thwarted a similar attack
planned against citizens in a visa line at
the U.S. Consulate. Again, we helped.

Of course, our ultimate objective is
to join with other nations devoted to
peace and freedom so that we can wipe
this planet clean of terrorism. Interna-
tional terrorism demands an interna-
tional response. And we have a long,
long way to go. Believe me, I know this
all too well.

In June of 1985 I stood on the hard
earth at Andrews Air Force Base, and I
received in the name of this country the
body of a young man named Robert
Dean Stethem. You remember that
name. He was the Navy enlisted man
who was shot to death by terrorists on
TWA Flight 847. They tortured him and
then they shot him in the head. They kill-
ed him because he was an American
serviceman.

A few months later, another gang of
terrorists hijacked the Achille Lauro.
Leon Klinghoffer was on board taking a
last holiday cruise with his dying wife.
The terrorists singled him out, a sick old
man in a wheelchair, and they executed
him. They killed him because he was an
American.

Last March, four American terrorist
victims included a mother and the baby
she held in her arms. Not long after-
ward, two American soldiers and a
Turkish woman were killed and another
150 people injured in the bombing of a
West Berlin nightclub; a nightclub, I

might add, that was targeted because it
entertained Americans.

As an American official, it's natural
for me to highlight incidents where
Americans have been killed. But I refer
to these specific attacks to make a more
general point. And that is that ter-
rorism, wherever it takes place, is
primarily directed against democratic
governments and their citizens. The
moral values on which democracy is
based— individual rights, equality under
the law, freedom of thought, freedom of
religion, and the peaceful resolution of
disputes— are all threatened by those
who attempt to impose their will through
terrorist violence.

Terrorism ranks as one of the
greatest modern day threats to
democracy in our own hemisphere. Con-
sider for a moment Latin America,
where in recent years Argentina, El
Salvador, Peru, Colombia, Guatemala,
Honduras, Brazil, and Bolivia have all
taken impressive strides toward
democratic rule. These countries, led by
strong and sometimes heroic statesman-
ship, are building new, more open
societies for their people in the face of
murderous outfits such as the FMLN
[Farabundo Marti National Liberation
Movement] in El Salvador, the AVC
[Alfaro Lives] in Ecuador, the M-19 in
Colombia, and the Nicaraguan and
Cuban Governments— both of which have
been exporting subversion and terrorism
throughout our hemisphere for years.

Terrorist Claims and Goals

Terrorists and their apologists fre-
quently claim that they are merely
"soldiers" or "guerrillas" or "freedom
fighters" in a struggle for national
liberation. I reject this premise. And the
American people reject it.

Terrorists are criminals. They use
murder, torture, hijacking, and the kid-
napping of innocent people to further
their own evil ends. In some cases the
terrorist may even intend that his
actions escalate into general warfare.
But that does not convert a terrorist into
a soldier any more than his political
aspirations turn him into a statesman.

When terrorists aim their machine
guns at a peaceful sidewalk cafe as they
did in El Salvador in 1985, or when they
slaughter worshipers as they did in an
Istanbul synagogue just 4 months ago,
they forfeit all right to call themselves
soldiers or freedom fighters.

Terrorism attempts to erode the
legitimacy of democratic institutions. Its
real and lasting effects cannot be
measured in body counts or property

damage but rather by its long-term
psychological impact and the subsequ t
political results.

The terrorists' cry is: Don't trust j
your government, your democratic in
stitutions, your principles of law. Nor
of these pillars of an open society can^
protect you. Give in to our demands. 1
terrorists' goal is to attract attention I
themselves and to their causes in
defiance of democratic and legal proc
esses. In that sense, terrorism is a kii
of violent graffiti, and simply by capti
ing headlines and television time the 1
rorist partially succeeds.

Our Response

But the greater danger lies in our
response. If democratic governments
appear indifferent or impotent in the
face of terrorists, they imply that the
is something to what the terrorists ha
to say. As a stable and prosperous coi
try, a society Abraham Lincoln called
"the last, best hope on earth," the
United States has a duty to help
freedom-loving and democratic counti
throughout the world, especially those
our own hemisphere, combat terrorisi
It is neither bravado nor alarmist sen
ment, but simple historical fact, that ;
lack of national will, an attitude of "i{
nore terrorism and it will go away," v
result in more, not fewer, terrorist
assaults. The British military historiai
Sir Robert Thompson once defined a
country's military power as its appliei
resources plus its applied manpower
multiplied by its national will. In the
West's war against international ter-
rorism, it is critical that would-be ter-
rorists know that their actions will re,
in retribution.

At the same time, we do not take
pleasure in confrontation or bloodshei
We do not look for fights. Military sol
tions can never be our first choice. E\
in the case of our air strike against
Libya, we tried every peaceful and
diplomatic means of convincing Col.
Qadhafi that his support of terrorism
was unacceptable; when we acted and
acted boldly the initial gasp turned int
broad support for a message the Coloi
heard loud and clear. So let there be n
confusion, least of all among would-be
terrorists. If a terrorist act is commit-
ted, we will come after you. And if we
find you, we are going to bring you to
justice.

Not only is the United States com-
mitted to bringing terrorists to justice
but we have encouraged all civilized
nations to join us in hunting down
suspected terrorists.

Department of State Bull<

THE SECRETARY

As you know, last week the long arm
cthe law caught up with two Lebanese
lyn, both of whom are believed to have
is to Shi'ite Moslem terrorist groups
: it have attacked American targets in
, t past. In fact, one of those men,
; ihammed Ali Hamadei, may have been
Solved in the murder of Robert Dean
f 'them, the young serviceman I talked
rout earlier.

i I want to share with you what I told
A parents on that day when his body
Ene home to its final resting place. I
1 1 them that we understood the lesson
) heir son's tragic death. I told them
It we would not forget him. Three
is ago, Robert Stethem's dad called
ir up. He told me that he and his wife
;pd half the night when they heard that
>1 of the men who might well have
ordered Robert had been captured.
Bi see, the Stethems, their marvelous
ftng son murdered in cold blood, don't
»it revenge. They simply want justice.
[ Id him again that America hasn't
batten his brave son. Well, we
len't. And our friends in Germany,
tie who deserve the credit for appre-
nding Mr. Hamadei, haven't forgotten
1 er. And none of us are going to rest
n 1 Hamadei is brought to justice.

One of the key points in our task
y e report related to more interna-
:i al cooperation on extradition. I want
x ike this opportunity to thank the
J mans for their fine cooperation on
i extradition process of Hamadei.

We have to stand up to terrorism,
u we have to keep standing up until
v ;top it. That's why our policy has
X i, and continues to be, no conces-
i s to terrorists.

Our counterterrorist policy has
■e ized many successes these past few
re 's. But as a great nation that sees
ti f as a powerful force for good in a
i >nt world, we recognize that we will
K always succeed. Nevertheless, we
I ! to try.

This Administration has tried hard
» ake the world a safer place in which
»i /e. And we have tried hard to give
le ocracy and freedom a better chance.
N 1 1 our allies' help, and with the sup-
w and trust of the American people,
« vill move forward united in our com-
ni lent to stopping terrorism, united in
iu :ommitment to democracy and
t« iom, and dedicated to carrying out
>u obligations as the leader of the free
»« d. Our fight against terrorism rages
M t's a fight that together we must

Text from the Office of the Vice Presi-
te! s Press Secretary. ■

Meeting America's
Foreign Policy Challenges

Secretary Shultz s address before the
Institute of International Education and
the World Affairs Council in Denver on
February 20, 1987. 1

Today, I want to talk with you about the
role the United States seeks to play in
the world. Overall, our foreign affairs
situation is good and our prospects
bright. We have a strong hand with
which to influence world affairs to our
benefit— but only if we are persistent,
use our advantages wisely, and apply the
necessary resources to the conduct of
our foreign relations.

To do so, we need to have clearly in
mind just where we are and where we're
going; the problems we face and the
strengths we have for dealing with
them; and, finally, the challenges that
we should be focusing on right now. And
that's the purpose of my remarks to you
today.

America's Foreign Policy Goals

We begin with the question of our
foreign policy goals. What are we, as a
people and a nation, seeking to
accomplish?

There is a strong consensus on our
basic objectives. They are widely
understood and supported by the
American people. I think all of us can
agree that we serve the interests of the
United States best when we seek to:

• Protect the safety of our nation
against aggression and subversion;

• Promote our domestic prosperity;

• Foster the values of freedom and
democracy both at home and abroad;

• Act in a manner consistent with
our humanitarian instincts; and

• Combat those activities which
undermine the rule of law and our
domestic stability— particularly, right
now, terrorism and narcotics trafficking.

Over the past four decades, both
Republican and Democratic administra-
tions have come to agree on these goals.
They're not the source of divisive par-
tisan debate. But for that very reason,
we sometimes take them for granted.
We shouldn't. We should keep reminding
ourselves of them, for they represent, in
effect, the compass of our dealings with
other nations.

Foreign Policy Problems

Now, how are we doing in accomplishing
these broad objectives?

Clearly, we face a number of serious
and immediate challenges in the world
today— ones that directly affect our
national interests. In the Middle East, in
Africa, and elsewhere, persistent ten-
sions threaten regional peace and stabil-
ity. The continuation of conflict in the
Persian Gulf raises the possibility of
wider escalation of a war that threatens
our energy security and that of our
allies. In Central America, democracies
are struggling to eliminate externally
supported aggression and subversion. In
Afghanistan, Angola, and Indochina, the
Soviet Union and its proxies are using
military force in the most brutal manner
to maintain and expand their influence
and control.

Current events in Beirut have yet
again illustrated that no single country
or its citizens are exempt from the
scourge of terrorism. Combating that
threat will continue to demand steadfast
courage and expanded cooperation on
the part of all civilized nations.

And among the major industrialized
democracies of the world, we confront
persistent pressures for thinly disguised
protectionist measures. These short-
sighted actions would only stimulate
political confrontations among trading
partners. They would have the effect of
dismantling the open world trading
system which has helped to generate so
much of the West's prosperity and
technological advantage of the past four
decades.

Positive Trends in Our Favor

Now, that's the catalogue of problems.
But more than balancing those problems
is increasingly clear evidence that we are
making significant progress in the world.
Trends are in our favor. The movement
toward expanded political and economic
freedom is real and growing.

II 1987

THE SECRETARY

Our world is already in the midst of
a scientific and technological
revolution— one whose social, economic,
political, and strategic consequences are
only beginning to be felt. Time and space
are contracting as instantaneous com-
munications make business, politics, and
culture truly global for the first time.
Familiar measures of economic
development— and, by extension,
military and political strength— are
becoming outdated. This new informa-
tion age is bound to have, and already
has had, a profound impact on world
politics and economics.

My own belief is that, having long
since passed from the agricultural age—
although we still produce more than
enough food to feed ourselves— we in
this country have left the industrial age,
and we're in a new era. No longer, if
somebody asks you, "What is the symbol
of America's economy?"— well, maybe
once you would have said the blast fur-
nace and the assembly line. You
wouldn't say that today, would you? It's
different.

This new information age has the
potential to be our age— a period which
plays to the great strengths of the West.
The productivity and competitiveness of
a nation will be far more dependent on
how freely knowledge can be used and
shared. And unlike oil or mineral wealth,
knowledge is a resource that does not
diminish but, rather, increases with its
use. In this sort of environment, open
societies such as our own will thrive;
closed societies will fall behind. What is
more, this lesson— that freedom and
openness are the wellspring of
technological creativity and economic
dynamism— is increasingly well
understood throughout the world.

Recent events in the Philippines
have once again demonstrated the
power of the democratic idea. Through-
out Latin America, we have seen a
remarkable resurgence of democratic
governments. Contrary to predictions of
just a few years ago, the percentage of
Latin America's population living under
freely elected governments has grown
from 30% in 1979 to more than 90%
today. In witnessing these events, we
cannot be indifferent to just how positive
and important a role the United States
can play in supporting such develop-
ments.

problems of economic growth. Few coun-
tries would now dispute that entre-
preneurial initiative in a market
environment is the engine of develop-
ment and growth. These truths are being
acknowledged even in the communist
world, as demonstrated by economic
reforms in China and Hungary.

All this reflects that the great
ideological struggle that has marked this
century ever since the Bolshevik revolu-
tion of 1917 has essentially been decided.
In the contest between the Western
values of democracy and individual
freedoms and Soviet-style, party-
dominated centralized collectivism, the
trend is in our favor, and it's clear. In
contrast with earlier decades, no one
speaks today of communism as the wave
of the future. The battle of ideas will
doubtless continue, but we have the
winning hand.

As a consequence, it is the Soviet
Union's massive military might alone—
and not any inherent economic advan-
tage or political appeal— that underlies
its status as a global competitor. The
Soviet Union possesses a clear and
sobering strategic threat to the United
States and its allies. It has the capability
to intervene with conventional military
force, directly or through proxies, in
many regions of the world and to
threaten and to try to intimidate our
allies and friends in these areas. It com-
mands a massive nuclear arsenal and, in
particular, an offensive ballistic missile
force able to inflict great destruction on
the United States and our allies.

We must be prepared to counter
these threats. We must be prepared to
deter Soviet aggression against the
United States or its allies, by whatever
means. We must have the defensive
strength necessary to demonstrate that
we and our allies would be able to
respond instantly, and with enormous
effectiveness, should we be attacked.
That's the way to keep the peace, to
have the capacity to deter.

Why Our Approach Works

As a nation, we have the ability to meet
these challenges. We can capitalize on
the foreign affairs opportunities before
us. To do so, we have to show patience
and determination— but we have power-
ful advantages in our favor.

The first of these advantages is
our democratic vision. The effec-
tiveness of our foreign policy reflects our
confidence in our beliefs and values and
in our purposes and priorities as a
society. People throughout the world

look to us for a vision of the future,
precisely because so many individual
Americans— such as Martin Luther Ki
Jr., whose birthday we celebrated
recently— have worked to extend the
promise of our beliefs to everyone,
regardless of race, creed, or class. Am
by so doing, they have made America
stronger in the world: stronger in our
own sense of solidarity as one people ;
stronger as a precious source of hope-
realistic hope— for oppressed people
everywhere.

And we gain strength from our
tremendous economic capabilities.

America's economic capacity— its abili
to support ambitious national objective
to advance the edge of technological
creativity, and to support increased
domestic prosperity— can only be
described as awesome. Of course, we
have our problems— and not the least
Federal budget deficit that we must
address promptly and effectively, and
I'm confident we can. And by doing s(
we will be better able to draw upon th
powerful economic advantages that w
possess in the pursuit of our foreign
policy objectives.

We are also benefiting from a
renewed sense of hard-headed realis
about the importance of our own
military strength. Healthy American
defenses are the indispensable underp
ning for any American foreign policy
seeking a safer world and a more
durable peace. Our weakness invites
challenges and intransigence; our
strength deters aggression and
encourages restraint and negotiation
the part of our adversaries. But we fa
entirely new security challenges in
today's world, including protracted
armed subversion, state-sponsored tei
rorism, or the political disruption and
violence associated with large-scale n;
cotics trafficking. If we are to be effei
tive in meeting these threats— as well
in deterring more traditional forms of
aggression— we have to be steady in s
porting our commitments and ready t
act decisively when necessary. We ha'
to show the political will to use our
military strength intelligently and effi
tively in defense of our most vital
interests. And we have to be clearly
perceived by both friends and adver-
saries as having that will.

Now let me turn to our diplomai
efforts. Power and diplomacy are not
contradictory alternatives in our deal-
ings with the world. They are com-
plementary and reinforcing componen
of our foreign policy. Military pre-
paredness alone is not enough.

Department of State Bullw

THE SECRETARY

9>lomacy is an essential and cost-
fcctive means of accomplishing our
Isctives. But diplomacy that is not

■ ked up by military strength is usually
Kfective. And so, as a first resort, we
Ik to meet our objectives with
llomacy. It can encourage like-minded
i ions to join with us in common effort
|l bring a greater sense of predictabil-
land stability to our relations with
lential adversaries. If we attempted to
ill with the diverse threats to our

! Tests on a unilateral basis, this would
liand great effort and enormous
lense on our part. But there is a more
Icient strategic alternative. Our
lomacy— along with its various tools
ii as security assistance and economic
flport funding— seeks to maximize our
ictiveness in the world through
alteration with those nations with
Ich we share basic values and common

■ rests.

f! Foreign Affairs
it ource Crisis

lis far, I have spoken about America's
H ning hand in world affairs because I
il personally confident about our
lonal strengths and the wisdom of our
j?ral approach. But I also have to

■ id a warning note as well. Just as we
laid be consolidating our recent gains,

■ ire in danger of undercutting our
^ tion in the world by denying

■ .elves the necessary resources. Any
ft tegy is only as good as the tools pro-
I d to work toward its objectives. And
(I ire fast approaching a situation in
Ith the United States will simply not
I ! the foreign policy tools needed to

[t the job done.

Last month, the President submitted
» le Congress his fiscal year (FY) 1988
■ FY 1987 supplemental requests for
h 'oreign affairs budget— some $19.6
)i >n. I can assure you, the budget
•e est was no pie-in-the-sky wish list. It
B 'Cted a number of tough choices that
I lad to make as part of our contribu-
I to reducing the overall Federal
1 :it. As a result, our request for FY
I ! is $1.6 billion lower than for the
I ious year. Our total request amounts
» ss than two cents on every dollar
* iosed to be spent by the Federal
;c >rnment.

This year, as the Congress begins to
M ;w our foreign affairs budget
Best, there is no fat to be cut— we've
ftidy gotten to the bone and well
X ind. Over the past 2 years, Congress

■ made devastating cuts in our foreign
Hirs budget proposals. We have lost

over $3.3 billion from the resources we
were operating with in FY 1985, and
we've had mild inflation since then, but
some inflation, so the real value is even
less. And, remember, a portion— roughly
40% or so— of that budget is fixed. It
doesn't get cut. So the cuts get borne
heavily by the remainder. And if you are
trying to operate an embassy in Japan or
in Western Europe where the currency
cross-rates have changed drastically,
you're in tough shape.

But these drastic reductions were
not generated through any careful deter-
mination of national priorities. They
didn't reflect any lessening in the
importance or number of foreign policy
challenges that this nation faces in the
world. These cuts were more severe, in
percentage terms, than the reductions in
any other function in the President's
budget requests. And, as I was saying,
for our key posts in Europe and Japan,
they have been even more damaging as a
result of the recent decline in the dollar.

But what do these figures really
mean? These draconian budget reduc-
tions are forcing us to play Russian
roulette as we shortchange our various
foreign policy interests. If massive cuts
are continued this year, they will directly
undermine our ability to exercise effec-
tive leadership in the world.

This budget crisis is perhaps the
most urgent— and the least recognized-
foreign policy problem facing our nation
today. These cuts have seriously
impaired our ability to provide necessary
economic and military support for our
allies and friends in need. By doing so,
they risk our continued access to vital
military bases and facilities overseas
that would require tremendous expense
and effort for us to try to replace or
compensate for. They signal— correctly
or not— a declining U.S. interest in sup-
porting our friends and allies in
strategically important regions.

And the effects of these cuts go fur-
ther. They hamper our war on drug traf-
fickers and on terrorists. They restrict
our attempts both to promote
democratic values and reforms overseas
and to expand trade and develop jobs.
And, by forcing us to close overseas
posts and to curtail necessary training,
such as language training, they are
weakening not only our career Foreign
Service but the government's very
ability to follow, analyze, and understand
developments in a fast-changing interna-
tional environment.

Let there be no mistake: the expend-
iture of resources in support of our
foreign policy objectives is not any sort

of a "giveaway." Our foreign affairs pro-
grams are designed to advance U.S.
national security interests. They're a
cost-effective way of doing so, and they
make less likely the possibility that we
will have to fall back on military means
to counter threats against us. They are
an investment in a better future for
ourselves and our children. Attempting
to save some dollars in the short run
through deep cuts in these programs
may turn out to be a very expensive
illusion. Over the longer term, these cuts
may cost us much more— in money, in
jobs, and even in lives.

Challenges Before Us

And that should be an important lesson
for all Americans. The pursuit of an
effective foreign policy— one that seeks
meaningful progress toward our basic
goals— doesn't lend itself to quick fixes.
Americans have to be prepared to con-
duct foreign relations on a coherent,
long-term basis. But that requires a
special steadiness and persistence on our
part. A world of peace and security will
not come without considerable exertion
or without our facing up to some tough
choices.

In particular, we cannot allow
ourselves to lose our sense of focus on
what we are seeking to achieve in the
world and what is required to reach
those ends. It would be all too easy for us
as a society to become distracted from
what is truly at stake in the most urgent
foreign policy challenges now facing us.

The first such challenge lies with our
firmness and reliability in promoting the
cause of democracy, national self-
determination, and individual freedom in
various parts of the world. In some
cases— as in the Philippines today— this
will involve our continued support and
assistance for the efforts of the Filipino
people to strengthen democratic institu-
tions in the face of a bitter communist
insurgency and economic problems. It is
in our strategic interest to do so and to
do all we can to support President
Aquino's government in promoting
democracy, stability, and prosperity in
the Philippines.

Where necessary— as in Central
America— we must be prepared to assist
friendly governments in dealing with
externally generated threats to their
political stability. We desire a peaceful
and negotiated resolution to such
regional tensions and will work, and do
work, actively to those ends. But we
should never forget that the firmness of
our support for threatened democratic
governments is a necessary incentive for

■il 1987

THE SECRETARY

potential aggressors to refrain from
threats and attempts at subversion.

Today, we also see the power of the
idea of freedom calling into question the
old assumption of the inevitable perma-
nence of dictatorships of the left in
various countries. Soviet-sponsored
aggression in Afghanistan, Angola, and
Cambodia, and the oppression of a
Marxist-Leninist regime in Nicaragua,
have given rise to resistance movements.
These men and women are struggling
for the rights denied them by communist
rule. And, as such, they deserve our
support.

We should be under no illusions.
Over the longer term, our reliability in
supporting those who believe in freedom
in the face of communist totalitarianism
is an important element in securing and
ensuring our own security. It encourages
our friends and gives our adversaries a
reason for restraint. And conversely, if
we fail to support those struggling for
freedom in their own countries, we will
only face more daunting challenges to
our security over the longer term.

The second pressing challenge is that
of our response to terrorism. In recent
years, we have seen new and ever more
virulent forms of this modern-day bar-
barism. These include the emergence of
narcoterrorism, where the narcotics traf-
fickers provide the money and the ter-
rorists provide the muscle— the use of
such violence in association with nar-
cotics trafficking to undermine local
governments. Quite simply, terrorism is
war. It's a shadow war involving direct
and brutal assaults on the lives of our
citizens, on our national interests
overseas, and on our basic values.

It's vital that we win this war. But
to do so, we have to be prepared for a
long, tough effort. It's inevitable that, as
a people, our hearts go out to the
individuals directly affected by terrorism
and to their families and friends here at
home. But we cannot allow our sympa-
thies to overshadow the pressing need
for us to stand firm behind our prin-
ciples and to deny international ter-
rorism further leverage against us. Our
foremost priority must continue to be to
demonstrate, through word and action,
that there are no rewards for terrorist
violence. We have to see to it that the
terrorists not only don't get rewards,
they pay a price. We have to redouble
our cooperative efforts with other
nations in dealing with this scourge.

The third pressing challenge we face
lies with the management of our rela-
tions with the Soviet Union. The Soviet
Union poses the primary threat to our

security, yet our two countries share a
basic interest in ensuring that— as the
President and General Secretary Gor-
bachev agreed at their Geneva summit
in 1985— they said, "A nuclear war can-
not be won and must never be fought."

In our dealings with the Soviet
Union, we have pursued a four-part
agenda of issues that are important to
us, including arms control, regional con-
flicts, bilateral matters, and human
rights. In the field of arms control, the
President's discussions with General
Secretary Gorbachev at Reykjavik last
October revealed potential areas of
agreement on substantial and verifiable
mutual reductions in offensive nuclear
weapons that would enhance strategic
stability. We are committed to pursuing
these opportunities at the negotiating
table, even as we will also continue our
efforts— consistent with the ABM [Anti-
Ballistic Missile] Treaty— to research
ways of strengthening that stability
through greater reliance on defenses.
Both efforts are complementary and
necessary.

But this places special demands on
us. We need a sustained effort that is
firm, realistic, and patient. We can't
afford to become either disheartened or
euphoric with each week's news out of
Moscow. Agreements for their own sake
are of no interest. It is the content that
counts. Nailing down the details of any
meaningful agreement with the Soviets
will take time and tough negotiating.

And for that sort of negotiating to be
successful, we have to be prepared to
take the necessary steps to keep
America strong.

Conclusion

And so, as Americans, we have our wfe
cut out for us. We have to use our pcto
and our diplomacy with exceptional si 1
in a highly competitive international i
environment. But if the problems bef'k'j
us are great, so, too, are our strength
and our opportunities. Our political ai
economic freedoms are those which h m
the greatest promise for the future. C'r
diplomacy is active in seeking practic
negotiated solutions that might
strengthen the peace, and we have
rebuilt our military strength so that \ 1 1
can better defend our interests and
discourage others from violence. And'e
have allies with whom we share comr n
purposes and ever more effective
cooperation.

The test for us will be whether-
the conduct of our foreign policy— we
continue to make the best use of our
energy and creativity as a people in t
service of peace and our democratic
ideals. I, for one, am confident that v
will meet that challenge.

'Press release 46 of Feb. 24, 1987.
Question-and-answer session following
address not printed here. ■

Secretary's Interview

on "This Week With David Brinkley

> ?

Secretary Shultz was interviewed on
ABC-TV's "This Week With David
Brinkley" on February 8, 1987, by David
Brinkley and Sam Donaldson, ABC
News, and George F. Will, ABC News
analyst. 1

Q. You've heard Senator [Sam] Nunn;
you've heard a great many others, in
fact, on this topic — the push to reinter-
pret the ABM [Antiballistic Missile]
Treaty so as to allow an early deploy-
ment of Star Wars, SDI [Strategic
Defense Initiative]. Where is this
coming from and why?

A. Let me tell you, if I can take a
minute, exactly what the President's
position is on this. First of all, as far as
early deployment is concerned, as

Secretary [of Defense Caspar]
Weinberger is saying today in a tape
interview on a BBC [British Broad-
casting Corporation] program, it is n
possible to make any such decision tl
year or next year, and he declines to
when that might be possible. It depe
upon the progress in the work.

Second, there has been, apparent
very considerable progress. It's
encouraging. The push that the Pres
dent has put behind this, and Secrete '
Weinberger and others, seems to be y-
ing off, and we're getting somewhen
Maybe we're going to learn how to
defend ourselves against ballistic
missiles, and we all ought to be thanl ll
of that.

Department of State Bui tin

THE SECRETARY

Third, the President's criteria for
■hat has to be met in order to make a
eployment decision remain in effect. A
/stem, obviously, would have to be
jchnically feasible, would have to be
irvivable, and would have to be cost-
ffective at the margin.

Now, the progress in the program is
Jach, again as Secretary Weinberger
iiys today, that it is now prudent to
link to yourself, if these developments
ime along continuing as they are, we
lould begin to factor into our research
jrogram how you would go about
.eployment if you were to make such a
ecision. And as soon as you pose that
lestion, there are certain obvious
lings that come forward which, by and
rge, everyone agrees on, namely,
jviously, you have to do it in phases,
hen you have to ask yourself, what is to
B the characteristic of each phase? And
le of them should be that each phase,
its stage, adds to stability. You don't
ant to do something in a phase that
akes the situation less stable; you want
to be more stable. Second, since you're
Iking about an overall system, you
m't want to start with phase one until
)ur are clear and confident about where
>u're going. So that's where we stand,
id so there isn't any early deployment
;cision in the offing, but the program
is gone along very well.

Q. But the issue is not the deploy-
ent, is it? It's testing, that you can't
iswer any of the questions you've
st posed without a certain test, and
lere's a scientific judgment at odds
ith the legal judgment. The scientific
dgment is, you need the tests that
•e permitted only by a broad inter-
etation of the ABM Teaty of 1972.
nd there is a legal argument in town
tat that reading is incorrect.

Now, the Administration is asking
llions more dollars after the billions
ready spent. Is the Administration
>sition that that spending makes
;nse if, but only if, the broad inter-
■etation allows testing to answer
lese questions?

A. No, that's not the Administration
usition. The program itself has been
^signed given the restrictions in what's
died the "narrow" interpretation, and
le program's made a lot of progress,
ut it is clear enough now, given the
rogress that's been made, that you'd be
ole to pursue the program much more
ffectively— and perhaps only— if a dif-
srent pattern of testing is permitted.

So that raises this question which
'as, in a sense, the second half of your

position and/or question, so let me tell
you where we stand on that: nothing
incompatible with what Senator Nunn
said here; namely, that there are three
bodies of evidence which you have to
examine, insofar as the meaning of the
treaty is concerned. First and most
important is the negotiating record.
We've done that and we believe that it
shows that a broad interpretation is
entirely within the meaning of that
treaty, although, of course, there are
ambiguities; but we think that will come
forward.

All of the material in that
negotiating record has been made
available to the Congress, that is, the
authoritative figures, including Senator
Nunn; and we will have a collaborative
process of discussing that. Second, as he
said, the ratification process, and what
was said in the ratification process, is
part of the body of evidence. That will be
examined, again collaboratively, you
might say.

And third, there is the question of
what have been the practices in the
statements to each other, in a sense the
common law, under this treaty that's
developed, and that, too, will be
examined.

Now, let me reemphasize a point
that I think you made in one of your
questions that I think is extremely
important. Obviously, we're interested in
what was said during the ratification
process here, but remember, that has
absolutely no standing insofar as the
Soviets are concerned. They look at the
negotiating record and are entitled to.

Q. Further, it said, if I may inter-
rupt you at this point, it said that
Ambassador [Yuriy] Dubinin of the
Soviet Union told you last week that if
the Administration moves to imple-
ment the strict interpretation, or
rather, the broad interpretation, arms
control is through.

A. I read that that's what is said,
but that is not, in fact, the case.

Q. What did he say to you?

A. But I'm not— let me return to the
point that we were discussing, because I
think it is very important to get this
straight.

Q. But you raised the question of
the Soviet attitude.

A. I didn't. I said that the Soviet
Union is entitled to look at the
negotiating record and draw conclusions
from that about what the treaty says.
They are not bound by what is said in
our ratification process.

I want to add a point, because we
have to remember we're talking about
our national security and figuring out
how to defend ourselves, and our allies,
with whom we will consult on all these
things, just as we will consult the
Senate.

Q. Before a decision is made, sir,
or after?

A. Before a decision is made.

Now, the reason why the examina-
tion of the negotiating record shows a
possibility of a broad interpretation is
that the Soviet Union has always been
more defense-minded than we have; and
they, in the negotiations, did not want to
foreclose what we apparently did want
to foreclose, namely, the possibility of
new and different defensive things based
on other physical principles. And we also
know that they have been working much
harder than we for a long period of time
on strategic defense.

Q. I understand the argument
you're making, which is that the
record, as the State Department inter-
prets it, allows the broad interpreta-
tion. But you also seem to be saying
that the broad interpretation, although
helpful to the testing, may not be
critical to the testing to answer all the
questions you posed at the beginning.
If it's not critical, and if, as usual, the
diplomatic imperative is not to rock
the boat, including the critics, Con-
gress, and the allies overseas, aren't
you saying in effect that there is no
particular urgency attached to your ad-
mittedly legally defensible position,
and therefore, won't the broad inter-
pretation be set aside?

A. No, I don't think it should be. At
least, there is the legal question, and
from the practical standpoint of what
you can do, first, you can do it much
more effectively if you don't have to test
things all around the barn and then
make gross inferences from it. You're
much surer of your ground if you test
something directly.

And then, no doubt, there are things
that you probably couldn't test ade-
quately under the narrow definition,
which are very desirable to test. There
are probably some things in addition, as
Senator Nunn suggested, that may be
impossible to test under either
definition.

Q. There's another threat to SDI,
and it's budgetary, and it can go like
this. The President, in his State of the
Union address, said he will veto any
attempt by Congress to enact the
Soviet agenda, in effect, on arms

Vpril 1987

THE SECRETARY

control— banning nuclear testing, forc-
ing the narrow compliance of ABM,
banning antisatellite tests— I'm miss-
ing one, but it's in there somewhere.
Anyway, what if those are attached to
the defense authorization and appro-
priation bills? The President vetoes
them: Congress doesn't have to send
up another one; you get a continuing
resolution, which means level funding
of SDI, which is, what? 70% below
what the Administration is asking?
Don't the critics of SDI achieve the
same thing?

A. What we have to do, represent-
ing the Administration, is present con-
vincing arguments— and I believe there
are convincing arguments— for what
must be done to safeguard the national
security of the United States and our
allies, and work collaboratively, care-
fully, and thoroughly with the Congress,
as we fully intend to do, for instance on
this question we were discussing a few
minutes ago. We do that in the expecta-
tion that the national interests of the
United States will emerge and be
reflected in the policies that come out of
that kind of discussion and debate.

Q. I'd like to change the subject.
Alann Steen, one of the U.S. hostages
being held in Lebanon, has shown up
on a videotape saying he and two other
Americans will be killed by his captors
within 24 hours unless Israel releases
some 400 Shi'ite prisoners that it
holds. I understand that Israel has
said it will not do that.

A. We'll respond as the situation
merits. I'm not going to try to forecast
it, but we do have a clear and basically
good set of policies on terrorism, and the
tactical implementation of them has been
broadly succeeding—

Q. Do you think this threat is a
realistic one?

A. —and I think that we're getting
somewhere.

Q. Do you believe this threat, or
do you think it's some gambit that the
kidnappers are taking?

A. I don't have any way of knowing.
They always issue threats like that. But
one thing I think you just can't do is
start jumping whenever threats are
made.

Q. If they killed three
Americans — if they killed one
American — we're still in that same
quandary, are we not? We have to
know, if it's military action, who to
hit, and we have to know whether
we're going to kill a bunch of innocent
people.

You once said, in a famous speech,
that it might have to be that some
civilians would die in a military
operation — if there were a broader
objective that was more important. Do
you still feel that way?

A. I don't know that I put it quite
that way, but I do think that the people
of Beirut have to recognize that what
they're doing is ruining themselves.
They, in effect, have a plague there; and
they're isolating themselves from the
world; and the world should isolate
them; and they should take control of
the situation. It is absolutely not in their
interest.

Q. It's not the people of Beirut,
it's a few.

A. Yes, the people of Beirut have a
responsibility for their own community,
and they're not exercising it.

Q. There was an attempt to
organize this past week, in Rome, a
conference, an international con-
ference on this problem, and how the
developed countries might deal with
it. Our European allies decided this is
a bad time to have it, and it wasn't
held.

A. It was to be a meeting of
experts, and they, two of them didn't
want to have it for different reasons.
But we have a vast amount of contact.

Let me just call your attention to
some positive things in this field. First of
all, it's been a pretty good week or so for
the rule of law involving terrorism.
Hamadei and his brother have been
detained by the Germans.

Q. But not extradited.

A. We have found and gotten
extradited from Colombia one of the
leading drug traffickers. The Philippines,
a year after Mrs. Aquino came into
office, had a huge turnout and voted a
new constitution. Gerry Seib was
released through a successful, quiet
effort. There are other things I could
tick off.

One of the interesting things about
1986 is that international terrorism in
Europe was down by 40%. That doesn't
mean it's satisfactory, but it's down. So
the efforts are proceeding, and they pro-
ceed on an international and consultative
basis.

And there's a question you're not
asking me—

Q. What is that?

A. —which is, which presents me, in
all seriousness, with the biggest foreign
policy problem that I have, and the

$
Hi
I
il

President has, and that is the inadequa
of the resources that the Congress is
making available to us to conduct our
international affairs. It's been cut
drastically.

Q. Foreign aid, are you talking
about?

A. It involves our security and
assistance to countries where we have
bases. It's for the security of the Unite
States. It involves things that will help
make the world economy more healthy
so it involves the prosperity of the
United States. It involves support for *
very gratifying trend toward freedom
and democracy, so it involves our
deepest values; it involves the fight
against terrorism, the fight against dn
trafficking— all these things in the
interest of the United States— and we'
being cut, cut, cut— and it's not in the i
terest of the United States, and I hope
the Congress appropriates what the
President has requested.

Q. Please consider that question
was asked.

Q. But isn't that applied
Reaganism? I mean, the Reagan
Administration wanted tax cuts. Nov
it says, cut these horrendous deficits
but do it by cutting the budget witho
raising taxes, and you force Congres
to choose between domestic spendinj
and foreign aid, and you're surprisec
at the choice thay make?

A. The President has presented a
budget that, as any budget, states
priorities. This budget is over one trilli
dollars. We're talking about two cents
on the dollar, to serve the interests of
the United States in our security, our
prosperity, and our values around the
world.

Q. Are you talking about improv
ing embassies for the safety of the
staff against bombs and so on?

A. That's one thing.

Q. That's one item.

A. That's an item. It's one among
many. I'm talking about the war of
ideas. There has been a big effort to
improve our effectiveness there.

Q. Can I ask you about Seib? Yoi '
said he was released through our
efforts, or through efforts.

A. He was released, and I'm not
going to talk about it.

Q. Can you guarantee us that we
didn't make a deal with Iran to relea:
him?

A. Yes.

Department of State Bulle

THE SECRETARY

Q. And you know that you speak
|r the Adminstration?
.• A. Absolutely.

J! Q. Can you tell us if Terry Waite
ersonal envoy of the Archbishop of
1 interbury] is, as he's described, a
gotiator? For whom and with what
res he negotiate? And does he have
xy connection with any American
|in, purpose, or institution?

A. He doesn't have a connection
with an American institution or govern-
ment. Of course, we're interested in any
efforts that somebody can make to free
the hostages.

Q. What's he negotiating with?

A. I don't know. He's a represen-
tative of the Church of England.

■Press release 33 of Feb 9, 1987.

lursuing an Effective Foreign Policy

1 Secretary Shultz 's statement before
i Senate Armed Services Committee on
¥rruary3, 1987. 1

J/elcome this opportunity to meet with
lu to discuss the role the United States
s >ks to play in the world and our
sategy for achieving the nation's basic
feign policy objectives. Overall, our
f eign affairs situation is good and our
i )spects bright. We have a strong hand

I ;h which to influence world affairs to
{ - benefit— if only we are persistent,

I ! our advantages wisely, and apply the
i ?essary resources to the conduct of
i - foreign relations.

Today, I want to review with you
j t where we are and where we're
f ng, the problems we face and the
s engths we have for dealing with
t m, and finally, the challenges that we
s >uld be focusing on right now.

Much of what I will have to say may
I ; sound very new to you, and for good
i .son. This Administration did not sud-
( lly discover national security strategy
i Dreparing for these hearings. We have
i trong and broadly based bipartisan
i ndation on which to build— and much
( which we inherited— and for the past
f ears we have been following a steady
A I consistent approach in our efforts to
i ranee U.S. interests, to support the

ise of freedom, and to make the world
i afer place.

In the field of foreign affairs, I have
li 1 out the rationale and the specifics of
C • policies on many occasions— in
t timony here before the Congress,
r st particularly in the Senate, before

I I Senate Foreign Relations Commit-

t , and in a series of speeches over the

1 st few years at Rand, at Harvard, in
i n Francisco, at the University of

( icago, in Atlanta, and elsewhere. So
t s afternoon should not be seen as an

occasion for breaking dramatic new
ground but rather for reviewing and
reaffirming the essentials of our national
strategy.

America's Foreign Policy Goals

We begin with the question of the goals
of our foreign policy. What are we, as
a people and a nation, seeking to
accomplish?

There is a strong national consensus
on our basic objectives. They are widely
understood and supported by the
American people. I think all of us can
agree that we serve the interests of the
United States when we seek to:

• Protect the safety of our nation
against aggression or subversion;

• Promote our domestic prosperity;

• Foster the values of freedom and
democracy both at home and abroad;

• Act in a manner consistent with
our humanitarian instincts; and

• Combat those activities which
would undermine the rule of law and our
domestic stability— and, particularly right
now, terrorism and narcotics trafficking.

Over the past four decades, both
Republican and Democratic administra-
tions have come to agree on these goals,
but they're not the source of divisive
partisan debate. But for that very
reason, we sometimes take them for
granted. We shouldn't. We should keep
reminding ourselves of them, for they
represent, in effect, the compass of our
dealings with other nations.

Foreign Policy Problems

How are we doing in accomplishing
these broad objectives? Clearly, we face
a number of serious and immediate
challenges in the world today— ones that
directly affect our national interests. In

the Middle East, in Africa, and
elsewhere, persistent tensions threaten
regional peace and stability. The con-
tinuation of conflict in the Persian Gulf
raises the possibility of wider escalation
of a war that threatens our energy
security and that of our allies. In Central
America, democracies are struggling to
eliminate externally supported aggres-
sion and subversion. In Afghanistan,
Angola, and Indochina, the Soviet Union
and its proxies are using military force
in the most brutal manner to maintain
and expand their influence and control.

Elsewhere in the developing world,
the efforts of local governments to
address the root causes of their
economic and social malaise have been
hampered by large foreign debt and
disappointing growth rates. The transi-
tion to greater political freedom in many
of these countries continues to be a
fragile process. In the current tragedy of
Sri Lanka, for example, movement
toward stability and growth on a basis of
economic freedom has been undermined
by violence arising out of longstanding
communal grievances.

Current events in Beirut yet again
illustrate that no single country or its
citizens are exempt from the scourge of
terrorism. Combatting that threat will
continue to demand steadfast courage
and expanded cooperation on the part of
all civilized nations.

And among the major industrialized
democracies of the world, we confront
persistent pressures for thinly disguised
protectionist measures. These short-
sighted actions would only stimulate
political confrontations among trading
partners and have the effect of disman-
tling the open world trading system
which has helped to generate so much of
the West's prosperity and technological
advantage of the past four decades.

Positive Trends in Our Favor

More than balancing those various prob-
lems, however, is the increasingly clear
evidence that we are making significant
progress in the world and that trends
are in our favor. For all its fragility, the
movement toward expanded political and
economic freedom is real and growing.

The world is already in the midst of
a new scientific and technological
revolution— one whose social, economic,
political, and strategic consequences are
only beginning to be felt. Time and space
are contracting as instantaneous com-
munications make business, politics, and
culture truly global for the first time.

>ril 1987

THE SECRETARY

Familiar measures of economic
development— and, by extension, military
and political strength— are becoming out-
dated. This new Information Age is
bound to have, and already has had, a
profound impact on world politics and
economics.

All of which seems to confirm that
this new Information Age has the poten-
tial to be our age— a period which plays
to the greatest strengths of the West.
The productivity and competitiveness of
a nation will be far more dependent on
how freely knowledge can be used and
shared. And unlike oil or mineral wealth,
knowledge is a resource which does not
diminish but rather increases with its
use. In this sort of environment, open
societies such as our own will thrive;
closed societies will fall behind. What is
more, this lesson— that freedom and
openness are the wellspring of such
technological creativity and economic
dynamism— is increasingly well
understood throughout the world.

Recent events in the Philippines
have once again demonstrated the per-
sistent power of the democratic idea.
Throughout Latin America, we have
seen a remarkable resurgence of
democratic governments. Contrary to
the expectations and predictions of so
many just a few years ago, the percent-
age of Latin America's population living
under freely elected governments has
grown from 30% in 1976 to more than
90% today. And in witnessing these
events, we cannot be indifferent to just
how positive and important a role the
United States can play in supporting
such hopeful developments.

At the same time, there is an equally
encouraging trend on the part of many
nations away from central planning
toward greater economic freedom for
the individual and increased reliance on
free market-oriented solutions to the
problems of economic growth. Few coun-
tries around the world now dispute that
entrepreneurial initiative in a market
environment is the engine of develop-
ment and growth. These truths are now
being acknowledged even in the com-
munist world, as demonstrated by
economic reforms in China and Hungary.

All of this reflects the reality that
the great ideological struggle that has
marked this century ever since the
Bolshevik revolution of 1917 has essen-
tially been decided. In the contest
between the Western values of
democracy and individual freedoms and
Soviet-style, party-dominated centralized
collectivism, the trend in our favor is

clear. In contrast with earlier decades,
no one speaks today of communism as
the wave of the future. The battle of
ideas will doubtless continue, but we
have the winning hand.

As a consequence, it is the Soviet
Union's massive military establishment
alone— and not any inherent economic
advantage or political appeal— that
underlies its status as a global com-
petitor. The Soviet Union poses a clear
and sobering strategic threat to the
United States and its allies. It has the
capability to intervene with conventional
military force, directly or through prox-
ies, in many regions of the world and to
threaten and try to intimidate our allies
and friends in these areas. It commands
a nuclear arsenal— and, in particular, an
offensive ballistic missile force— able to
inflict massive destruction on the United
States and our allies.

We must be prepared to counter
these threats. We must be prepared to
deter Soviet aggression against the
United States or its allies by whatever
means. We must have the defensive
strength necessary to deter the Soviet
threat by clearly demonstrating that we
and our allies would be able to respond
instantly, and with enormous effec-
tiveness, should we be attacked.

Why Our Approach Has Worked

As a nation, we have the ability to meet
these challenges and to capitalize on the
foreign affairs opportunities before us.
To do so, we must have patience and
determination, but we also have power-
ful strengths and advantages in our
favor.

The first is our democratic vision
and our commitment to give reality to
our ideals. The effectiveness of our
foreign policy will reflect our confidence
in our beliefs and values and in our pur-
poses and priorities as a society. Our
tradition of pluralism and openness
shapes the content of much of our
foreign policy. We support democratic
institutions in the world, for free peoples
can join together in resisting threats and
intimidation from nondemocratic forces.

Traditionally, people throughout the
world have regarded America as a land
of opportunity and looked to us for a
vision of the future. They know that
American society has its faults, in part
because we ourselves are always ready
to proclaim them. We are never afraid of
criticism, and we tend to measure our
performance through our proclamations.
Throughout our history, so many
individual Americans have worked

tirelessly to extend the promise of oi
beliefs to everyone, regardless of rao
creed, or class. Recently, our nation
tribute to one such American, Dr. Ma
tin Luther King, Jr. Dr. King's legac
and the epic poem of the black civil
rights movement have made America i
much stronger in the world: stronger
our own sense of solidarity as one pec
and stronger as a precious source of
hope— realistic hope— for oppressed p<
pie everywhere.

And we gain strength from our
tremendous economic capabilities. He
again, we are perhaps too familiar wi1
our own economic success story or
preoccupied with problems of the
moment to sense our true power and
potential. But America's economic
capacity— its ability to support ambiti
national objectives, to advance the ed
of technological creativity, and to sup
port increased domestic prosperity— c
only be described as awesome. And ri
now, interestingly enough, the so-call
misery index— you remember that Ar
Okun created that some years ago— is
its lowest point in 18 years.

There is, of course, an irony here.
Our national economy is enormous an
sound— over twice the size of any oth<
But the government is broke. The
Federal budget deficit is a major prot
lem for us; it affects our ability to grc
and to compete. It is a drag on all of <
efforts, and we must address it prom] y
and effectively. I'm confident that we :
can. And by doing so, we will be bettt
able to draw upon the powerful econc 18
advantages that we possess in the pn |J
suit of our foreign policy objectives.

And now, we are benefiting from
renewed sense of hard-headed realisn
about the importance of our own
military strength. A healthy America
defense establishment serves as the
indispensable underpinning for any
foreign policy seeking a safer world a
a more durable peace. Our weakness
invites challenges; our strength deter
aggression and encourages restraint ;
negotiation on the part of our
adversaries.

We are already seeing the positiv
results of that renewed realism. The
rebuilding of America's defenses in tr I
early 1980s has given the Soviets the
necessary incentive to begin serious
negotiations, not just on limits to the
future growth of our nuclear arsenals
but on their substantial reduction froi
current levels. Improvements in our
ability to project power abroad have
helped us protect our vital interests a

Department of State BulM

THE SECRETARY

?fend our friends against subversion
,id aggression. And our willingness to
j;e that power when necessary— as
gainst Libya, as a last resort after
*ars of Qadhafi's terrorism— has sent a
wwerful signal to friends and enemies
ike.

: But we face entirely new challenges
il American interests as well, and in
jday's world these are often less clear
It than the traditional examples of
agression we associate with World
liars I and II. And so we require not
<dy the military capabilities but also the
j.tience and the flexibility necessary to
tal with protracted armed subversion,
ute-sponsored terrorism, or the
] litical disruption and violence
jsociated with large-scale narcotics
lifficking. These new threats are
■Jmetimes referred to as "low-intensity
inflict." I don't particularly like that
■*m. There is nothing "low intensity"
iiout them for those who must join the
Ittle, and the stakes of these challenges
i our security are high.
I If the United States is to be effective
i addressing these threats— as well as in
t terring military aggression— we have
1 be steady in supporting our com-
l tments and ready to act decisively
I ien necessary. Our military must have
i > capabilities to perform a variety of
i ssions across the spectrum of security
rfillenges. But just as importantly, we
1 re to show the political will needed to
1 ; our military strength intelligently
i i effectively in defense of our most
1 al interests. And we have to be clearly
] "ceived by both friends and adver-
! - ies as having that will.

Now let me turn to our diplomatic
i orts. Americans have sometimes
1 ided to think that power and

< ilomacy are two distinct and conflict-
i ; alternatives in our dealings abroad.
] t power and diplomacy are not con-

1 dictory. They are complementary;
I ;h are necessary and reinforcing com-
] lents of our foreign policy. Military
] ?paredness alone is not enough. Power
i ist always be guided by purpose; and,
( te often, diplomacy is an essential and
t it-effective means of accomplishing
( " objectives. But diplomacy that is not
I :ked up by strength is usually
i effective.

As a nation, we learned from bitter

< perience during the first half of this
t itury that we can retreat from the

l ;t of the world only at our peril.
' day, we can see with even greater
( rity that what happens in distant
*ions of the globe has an important
taring on our safety and well-being.

And so, as a first resort, we seek to
meet our objectives with diplomacy
without having to use military force.
Successful diplomacy encourages like-
minded nations to join with us in com-
mon effort, and it brings a greater sense
of predictability and stability to our rela-
tions with potential adversaries.

The United States could attempt to
deal with the diverse threats to our
interests on a unilateral basis, but that
would demand great effort and enor-
mous expense on our part. There is a
more efficient strategic alternative, as
we have agreed upon as a nation for
more than four decades. Our diplo-
macy—along with its various tools, such
as security assistance and economic sup-
port funding— seeks to maximize our
effectiveness in the world through
cooperation with those nations with
whom we share basic values and com-
mon interests. But to conduct an effec-
tive diplomacy and to make best use of
all of our advantages require that we
sustain our efforts.

The Foreign Affairs
Resource Crisis

This afternoon, I have spoken about
America's winning hand in world affairs
because I am personally confident about
our national strengths and the wisdom of
our general approach. But I also have to
sound a warning note as well. Just as we
should be consolidating our recent gains
and building on important opportunities,
we are in danger of undercutting our
position in the world by denying
ourselves the necessary resources. Any
strategy is only as good as the tools
provided to work toward its objectives.
And we are fast approaching a situation
in which the United States will simply
not have the foreign policy tools needed
to get the job done.

Earlier this month, the President
submitted the Administration's FY 1988
and FY 1987 supplemental requests to
the Congress for the foreign affairs
budget. Responding to congressional
concerns, our FY 1988 budget request
was lower than that requested for FY
1987— and, I might say, lower than that
appropriated for fiscal 1985 or 1986. Our
total request amounted to less than two
cents of every dollar proposed to be
spent by the Federal government.

I am dismayed that over the past
2 years, Congress has made devastating
cuts in our foreign affairs budget pro-
posals. Last January, our international
affairs budget for FY 1987 was cut by

Congress by over 20%, reducing our
operating base by $1.8 billion. After
accommodating earmarked items which
had to be funded, the effective reduction
for the bulk of our operations was more
on the order of 50%. And that was on
top of the $1.5 billion cut from prior year
levels that we suffered in the FY 1986
congressional appropriations process.

Over the last 2 years, we lost over
$3.3 billion from the resources we were
operating with in FY 1985. These cuts
were more severe, in percentage terms,
than the reductions in any other function
in the President's budget requests. And
for our posts in Europe and Japan, these
cuts have been even more damaging as a
result of the recent huge changes in cur-
rency cross rates. Just call up your
friend Mike Mansfield [U.S. Ambassador
to Japan] and ask him how he's doing
taking those dollars you appropriate,
changing them into yen, and trying to
run his embassy.

Let me be blunt: these draconian
budget reductions are forcing us to play
Russian roulette as we shortchange our
various foreign policy interests. If these
massive cuts are continued this year,
they will directly threaten our ability to
exercise effective leadership in the
world. This budget crisis is perhaps the
most urgent— and least recognized-
foreign policy challenge facing our
nation today.

Challenges Before Us

The pursuit of an effective foreign
policy— one that seeks meaningful prog-
ress toward our basic goals— doesn't
lend itself to quick fixes. Americans have
to be prepared to conduct foreign rela-
tions on a coherent, long-term basis.
That requires a special steadiness and
persistence on our part. A world of
peace and security will not come without
considerable exertion or without our fac-
ing up to some tough choices.

In particular, we cannot allow
ourselves to lose our sense of focus on
what we are seeking to achieve in the
world and what is required to reach
those ends. It would be all too easy for
us as a society to become distracted
from what is truly important and at
stake in the most urgent foreign policy
challenges now facing us.

The first such challenge lies in how
we continue to support the cause of
democracy and freedom in Central
America. As a nation, we have long
sought to advance national self-
determination and individual freedom in
the world. And today, we see the power

>ril 1987

THE SECRETARY

of the idea of freedom calling into ques-
tion the old assumption of the inevitable
permanence of dictatorships of the left
or right in various countries. Not just in
Nicaragua but in Afghanistan, Angola,
and Cambodia as well, Marxist-Leninist
oppression and aggression have given
rise to resistance movements. These men
and women are struggling for the rights
denied them by communist rule. And as
such, they deserve our support.

We should be under no illusions in
this regard. Over the longer term our
reliability in supporting those who
believe in freedom in the face of com-
munist totalitarianism is an important
element in ensuring our own security. It
encourages our friends and gives our
adversaries a reason for restraint. And
conversely, if we fail to support those
struggling for freedom in their own
country, we will only face more daunting
challenges to our own security.

The second pressing challenge is that
of our response to terrorism. In recent
years, we have seen new and ever more
virulent forms of this modern-day bar-
barism. These include the emergence of
narcoterrorism— the use of such violence
in association with narcotics trafficking
to undermine local governments. The
narcotic traffickers provide the money,
and the terrorists provide the muscle,
and they work together; and they are an
extremely subversive element, and that's
particularly so right in our own
neighborhood, in the Andean countries,
for example. Quite simply, terrorism is
war. It's a shadow war involving direct
and brutal assaults on the lives of our
citizens, on our national interests
overseas, and on our basic values.

It's vital that we win this war. But
to do so, we have to be prepared for a
long, tough effort. It's inevitable that, as
a people, our hearts go out to the
individuals directly affected by terrorism
and to their families and friends here at
home. But we cannot allow our sym-
pathies to overshadow the pressing need
for us to stand firm behind our principles
and to deny international terrorism fur-
ther leverage against us. Our foremost
priority must continue to be to
demonstrate through word and action
that there are no rewards for terrorist
violence. We have to redouble our
cooperative efforts with other nations in
dealing with this scourge.

The third pressing challenge we face
lies with the management of our rela-
tions with the Soviet Union. The Soviet
Union poses the primary threat to our
security, yet our two countries share a

basic interest in ensuring that— as the
President and General Secretary Gor-
bachev agreed at their Geneva summit in
1985, quoting from their statement: "A
nuclear war can never be won and must
never be fought."

But this places special demands on
us. We need a sustained effort that is
firm, realistic, and patient. We can't
afford to become either disheartened or
euphoric with each week's propaganda
effort out of Moscow. Agreements for
their own sake are of no interest. It is
the content that counts. Our negotiating
objective of strengthening strategic
stability at substantially reduced levels
of nuclear arms is a sound one, and we

must stick to it. Our guiding objective
continues to be to persuade the Soviet
leadership— through the evidence of 01.
own determination— that excessive
military buildups on their part will off
no easy rewards and that negotiated I
restraint and reciprocity will be to oui
mutual advantage.

Conclusion

We have our work cut out for us. We I
have to use our power and our diplom
wiili exceptional skill and determinati I
in the service of peace and our
democratic ideals. But if the problemsB
before us are great, so, too, are our
strengths and opportunities. Our
political and economic freedoms are
those which hold the greatest promisel
for the future. We have a diplomacy 1 1
has moved toward peace through
negotiation. We have rebuilt our militi
strength so that we can defend our
interests and discourage others from I
violence. And we have allies with whcl
we share common purposes and ever I
more effective cooperation. Our
challenge is to use our strengths wise
on behalf of the interests of the
American people.

'Press release 25. The complete
transcript of the hearings will be publishe
the committee and will be available from i
Superintendent of Documents, U.S. Gove:
ment Printing Office, Washington, D.C.
20402. ■

Department of State Bull

AFRICA

/isit of Zaire's President

— ■

Pirsidi-nt Mohutii Scse Seko of the
i public of Zaire made an official work-
1/ visit to Washington, D.C., December
1 12, 1986, to meet with President
, a gun and other government officials.

Following are remarks made by
} esident Reagan and President Mobutu
i er their meeting on December 9. 1

1 esident Reagan

] ;sident Mobutu and I have had the
( Dortunity to review and renew one of
li| " oldest and most solid friendships in
I rica, that between the United States
>)| I the Republic of Zaire. Cooperation
I ween the United States and Zaire
l ier President Mobutu's leadership
s etches back through 20 years and five
.1 3. Administrations. In that time,
i lerican leaders have learned to place a
[ 'ticularly high value on President
Iibutu's insights and counsel.

photo by Pete Souza)

President Mobutu has brought a con-
sistent voice of good sense and good will
to the international councils where
African issues are considered, from the
United Nations to the Organization of
African Unity to the Nonaligned Move-
ment. He has stood uniformly for the
peaceful settlement of disputes but has
not shrunk from his responsibilities
when action was appropriate. In 1983,
for example, he dispatched troops to
assist Chad in defending itself against
Libya's criminal aggression. This year he
came to the assistance of the Govern-
ment of Togo as it faced an externally
mounted coup attempt.

Much of our discussion today focused
on Zaire's heroic effort to complete its
program of economic policy reform. As
you know, Zaire has been engaged for
nearly 4 years in a series of painful
sacrifices and adjustments designed to
rationalize and revive its private sector.
We have tried to help by supplementing
our regular development assistance with
special funds earmarked for African

states which are undertaking serious
steps toward reform. We've also encour-
aged our business community to look at
the growing investment opportunities in
Zaire and will continue to do so.

Unfortunately, Zaire's determined
economic efforts have been greatly com-
plicated by the severe drop in world
market prices for its exports. President
Mobutu and his people face a heavy
foreign debt burden. We have encour-
aged Zaire to hold firm to the respon-
sible, economic reforms it is attempting,
while promising to do our best to ease
the way.

Naturally, President Mobutu and I
also examined the regional situation,
especially in southern Africa, where we
share the goals of a rapid, peaceful end
to apartheid; the independence of
Namibia; and national reconciliation and
removal of all foreign forces stationed in
Angola. President Mobutu brings great
prestige and influence to bear on the
range of southern African problems, and
I welcome his recent efforts in seeking
solutions to these issues.

After today's meeting, we can be
more confident that the future of U.S.-
Zairian relations will remain close, pros-
perous, and productive. President
Mobutu and his country's friendship with
the United States is most appreciated.
And we're proud and pleased to have
him with us here today.

President Mobutu 2

On behalf of my wife and of my entire
delegation, I should like to thank you
most sincerely for your warm and
friendly welcome as extended to us by
you, personally, and by members of your
Cabinet ever since we arrived here in
Washington. Together we have surveyed
all issues that relate to the bilateral rela-
tionship of our two countries, and I go
home in full awareness that I have the
full support of your government and can
assure the people of Zaire that they can
count on you and on your government.

Again, Mr. President, thank you
very much for all that has been done to
facilitate our stay.

'Made in the Rose Garden at the White
House (text from Weekly Compilation of
Presidential Documents of Dec. 15, 1986).

2 President Mobutu spoke in French, and
his remarks were translated by an
interpreter. ■

Ml 1987

ARMS CONTROL

U.S. Arms Control Initiatives

In conjunction with the ongoing nuclear
and space talks in Geneva between the
United States and the Soviet Union, the
White House and the Department of
State released on January 13, 1987, the
following summary of U.S. initiatives on
various arms control issues and a
chronology of U.S. -Soviet arms control
negotiations and expert-level meetings
(1986).

Strategic Offensive Forces

During their October meetings at
Reykjavik, President Reagan and
General Secretary Gorbachev agreed in
principle on 50% reductions of strategic
offensive arms over 5 years to 1,600
strategic nuclear delivery vehicles and
6,000 warheads on those delivery
vehicles. The two sides made important
advances in rules for counting bombers
and reached agreement in principle on
the requirement for "significant cuts" in
Soviet heavy ICBMs, the most destabiliz-
ing missiles of all.

Our negotiators in Geneva promptly
tabled a new U.S. START proposal
reflecting the areas of agreement
reached at Reykjavik. On November 7,
the Soviet Union took some new steps as
well by tabling proposals that partially
reflect the headway made at Reykjavik.
It is our hope that these areas of agree-
ment can serve as the starting point
from which U.S. and Soviet negotiators
can hammer out significant arms reduc-
tion treaties.

Acronyms

ABM Treaty— Antiballistic Missile Treaty
ASAT — antisatellite system
CBMs— confidence-building measures
CD — Conference on Disarmament
CDE— Conference on Confidence- and
Security-Building Measures and Disarma-
ment in Europe
CW — chemical weapons
ICBM— intercontinental ballistic missile
INF — intermediate-range nuclear forces
LRINF— longer range INF
MBFR — mutual and balanced force

reductions
NST— nuclear and space talks
PNET— Peaceful Nuclear Explosions Treaty
SDI— Strategic Defense Initiative
START— strategic arms reduction talks
TTBT— Threshold Test Ban Treaty

Unfortunately, the Soviets continue
to link agreement in START to U.S.
agreement to the Soviet defense and
space proposal, which would effectively
kill the U.S. Strategic Defense Initiative.
This is unacceptable and is contrary to
the commitment made by Mr. Gorbachev
in November 1985 in Geneva to move
forward in areas of common ground,
including the idea of 50% reductions in
strategic offensive arms. The Soviets
also precondition their agreement on
50% reductions in strategic arms to U.S.
agreement in principle to total elimina-
tion of all strategic offensive weapons by
1996. This, too, is unacceptable; for the
present, given the massive Soviet invest-
ment in conventional forces, nuclear
weapons are indispensable to the
security of the United States and our
allies.

In early December, negotiators from
both sides met for between-round discus-
sions in Geneva. While there was no nar-
rowing of differences, we believe that
these talks did contribute to our prepara-
tions for the next round in that they
made limited but useful progress in
terms of clarifying points of agreement
and disagreement. For the current
round of NST, which begins on Jan-
uary 15, our task is to build upon the
accomplishments achieved in Reykjavik
and the proposals tabled in Geneva dur-
ing the last round of NST.

Intermediate-Range Nuclear Forces

At Reykjavik there was significant prog-
ress in narrowing differences on
intermediate-range nuclear forces. The
United States and the Soviet Union
agreed in principle at Reykjavik to a
global limit of 100 LRINF missile
warheads for each side, with none in
Europe. Remaining missiles would be
deployed in Soviet Asia and on U.S. ter-
ritory. The Soviets dropped their
longstanding insistence that British and
French nuclear weapons be included in
such an agreement. Both sides also
agreed in principle to constrain shorter
range INF systems and to hold follow-on
negotiations at Geneva for their reduc-
tion. Following the Reykjavik meeting,
our negotiators in Geneva promptly
tabled a new U.S. proposal incorporating
the areas of agreement in principle and
other elements which would be
necessary to achieve an acceptable INF

agreement. While the Soviets subse-
quently tabled a new proposal based oi
their version of the events of Reykjavi
they have stepped backward from mu<
of the progress made at that meeting.
Additionally, the Soviets have backed
away from their Geneva summit comn -
ment to conclude a separate interim
agreement on INF. They are now tryi
to link INF to other arms control area
insisting that their arms control pro-
posals are a "package" and cannot be
separated.

Defense and Space Issues

At Reykjavik, in response to the Sovk '
proposal that we provide a 10-year coi 1
mitment not to withdraw from the AI i
Treaty, the United States offered to
accept such a commitment for the
10-year period through 1996, during
which research, development, and
testing, which are permitted by the
ABM Treaty, would continue. U.S.
acceptance was coupled with:

• A 50% reduction in strategic
offensive forces of the United States : m
the Soviet Union by 1991;

• Elimination by 1996 of all U.S. I
and Soviet offensive ballistic missiles;
and

• Agreement that either side cou
deploy advanced strategic defenses :
1996, unless the sides agree otherwis

The Soviets, however, in effect
sought to amend the ABM Treaty by
banning testing of space-based
"elements" of a missile defense systi
outside of laboratories. This, in effec
would have killed the U.S. SDI
program— something the President c<
not accept.

Previously, the United States als
proposed an open laboratories
initiative— a confidence-building prog
of reciprocal briefings and site visits
strategic defense facilities.

In regard to ASAT, the United
States has not identified any limitatk
proposals which are effectively verifi;
and in the security interests of the
United States. We have offered to co
sider proposals for specific ASAT an
control measures, should those measi
be compatible with U.S. national
security.

Chemical Weapons

In April 1984, the United States pro-
posed to the 40-nation Conference on
Disarmament in Geneva a compre-
hensive treaty banning development,

Department of State Bui

ARMS CONTROL

-oduction, use, transfer, and stockpiling
' chemical weapons, to be verified by
•irious means, including mandatory
isite challenge inspection. At the
ovember 1985 summit, President
eagan and General Secretary
orbachev agreed to intensify bilateral
scussions on all aspects of the com-
-ehensive chemical weapons ban being
jgotiated at the CD. In 1986, we had
;>ur rounds of bilateral CW treaty talks,
id a fifth round is planned for
ebruary 1987.

The bilateral treaty discussions have
irrowed differences on the elimination
' CW production facilities and on
!iemicals to be covered by an eventual
,W treaty. However, important dif-
'rences remain on these and a number
' other key issues, especially those
yarding verification of treaty com-
'iance. To ensure compliance, the
nited States calls for systematic onsite
■ spection to verify compliance at
:clared sites and mandatory "challenge
; spections" to investigate suspected
olations. The Soviets have traditionally
i sisted that acceptance of challenge
spection be voluntary. Although they
cently indicated that stricter pro-
cures could apply to certain
lallenges, they have yet to explain fully
mw these would work.

In addition, we have opened a
alogue with the Soviets on preventing
e proliferation of chemical weapons. In
ese meetings, we reviewed export con-
ols and political steps to limit the
iread of chemical weapons.

uclear Testing

^ he U.S. priority in the nuclear testing
•ea is improvement of the verification
•ovisions of the existing Threshold Test
an Treaty and Peaceful Nuclear Explo-
ons Treaty. At the Reykjavik meetings
;tween President Reagan and General
ecretary Gorbachev, we proposed that
le United States and the Soviet Union
jgin negotiations on nuclear testing.

' he agenda for these negotiations would
rst be to resolve remaining verification
sues associated with the TTBT and

( NET. Once these verification concerns
ave been satisfied and the treaties
itified, the United States and U.S.S.R.
ould immediately engage in negotia-
ons on ways to implement a step-by-
;ep parallel program— in association
•ith a program to reduce and ultimately
liminate all nuclear weapons— of
miting and ultimately ending nuclear

listing.

Chronology

U.S.-SOVIET ARMS CONTROL

Mutual and Balanced Force

NEGOTIATIONS, 1986

Reductions Talks

August 6-7 in Moscow

Nuclear and Space Talks

September 10-11 in Washington

Round IV: January 16-March 4

Round V: May 8-June 26

Conference on Confidence- and

Round VI: September 18-November 13

Security-Building Measures and

Disarmament in Europe

Conference on Confidence- and

August 14-15 in Stockholm

Security-Building Measures and Dis-

armament in Europe (Multilateral)

Chemical Weapons Treaty Talks

Round IX: January 28-March 15

January 28-February 3 in Geneva

Round X: April 15-May 23

April 15-25 in Geneva

Round XI: June 10-July 18

July 1-18 in Geneva

Round XII: August 19-September 19

October 28-November 18 in New York

City

Conference on Disarmament

(Multilateral)

Chemical Weapons Nonproliferation

Chemical Weapons Committee Rump

Discussions

Session: January 13-31

March 5-6 in Bern

Spring Session: February 4-April 25

September 4-5 in Bern

Summer Session: June 10-August 29

Chemical Weapons Committee Chair-

Nuclear Testing

man's Consultations: November 24-

December 17

July 25-August 1 in Geneva

September 4-18 in Geneva

Mutual and Balanced Force

November 13-25 in Geneva

Reductions (Multilateral)

Round 38: January 30-March 20

Nuclear Risk Reduction Centers

Round 39: May 15- July 3

May 5-6 in Geneva

Round 40: September 25-December 4

August 25 in Geneva

U.S.-SOVIET ARMS CONTROL

Nonproliferation Talks

EXPERT-LEVEL MEETINGS, 1986

December 15-18 in Washington

Nuclear and Space Talks

August 11-12 in Moscow

September 5-6 in Washington

December 2-5 in Geneva at the

negotiator level

While there are indications that the
Soviets might agree to address our con-
cerns, there has yet been no agreement
on priorities in these negotiations. At
subsequent sessions of expert-level
discussions on nuclear testing, the Soviet
delegation backed away from an orderly

step-by-step approach to negotiations.
We hope to resume these sessions this
spring.

The President also indicated to Mr.
Gorbachev in Iceland that when the
100th Congress convened, he would
request the advice and consent of the

\pril 1987

ARMS CONTROL

Senate to ratification of the TTBT and
PNET, but with an appropriate reserva-
tion to the treaties that would ensure
that they not take effect until he cer-
tifies they are effectively verifiable. As
promised, the President forwarded that
request to the Senate on January 13.

Conference on Confidence-
and Security-Building Measures
and Disarmament in Europe

The 35-nation Stockholm CDE con-
ference adjourned September 22 with
the adoption of a set of concrete
measures designed to increase openness
and predictability of military activities in
Europe. These measures, which are built
around NATO proposals, provide for
prior notification of all military activities
above a threshold of 13,000 troops or
300 tanks, observation of military activ-
ities above a threshold of 17,000 troops,
and annual forecasts of upcoming
military activities. The accord also con-
tains provisions for onsite air and
ground inspections for verification.
Although modest in scope, these provi-
sions are the first time the Soviet Union
has agreed to inspection on its own ter-
ritory for verification of an international
security accord.

Bilateral Confidence-Building
Measures

The U.S. proposal for measures to
upgrade Hot Line communications was
agreed to by the Soviet Union and is
now being implemented. A U.S. proposal
to establish nuclear risk reduction
centers is now being considered by the
Soviet Union. CBM initiatives on
military-to-military exchanges and on
notifications of ballistic missile launches
and strategic military exercises have
also been proposed by the United States.

Mutual and Balanced Force
Reductions

On December 5, 1985, NATO proposed a
new initiative designed to meet Eastern
concerns. The proposal deferred the
Western demand for prior data agree-
ment on Eastern forces. The Soviets had
claimed that this Western demand was
the primary roadblock to agreement.
The proposal also called for a time-
limited, first phase withdrawal of 5,000
U.S. and 11,500 Soviet troops, followed
by a 3-year, no-increase commitment by
all parties with forces in the zone, during
which residual force levels would be
verified. Residual force levels would be
verified through national technical
means, agreed entry/exit points, and by
30 annual onsite inspections. Thus far,
the Soviets have not responded con-
structively to the Western initiative.

NATO High-Level Task Force on
Conventional Arms Control

The task force presented its report on
the direction of NATO's arms control

policy for the future to the North Atla
tic Council on December 11. At that
meeting, NATO ministers announced
their acceptance of the "Brussels
declaration," which states NATO's
readiness to enter into new negotiatio
with the Warsaw Pact aimed at estab
lishing a "verifiable, comprehensive a
stable balance of conventional forces ;
lower levels" in the whole of Europe
from the Atlantic to the Urals. NATO
hopes to begin discussions early in 1 9i
to develop a mandate for new negotia
tions. The Brussels declaration also ce
for separate negotiations to build up a
expand the results of the CDE

Nuclear Nonproliferation Treaty

On December 15-18, the United State
and the Soviet Union met in Washing
for the eighth round in an ongoing ser
of consultations, which began in
December 1982, on nuclear nonprolife
tion. These consultations covered a wi
range of issues, including prospects fc
strengthening the international nonpr
liferation regime, support for the
Nuclear Nonproliferation Treaty, and
the mutual desire of the United States
and the U.S.S.R. to strengthen the
International Atomic Energy Agency.
These consultations are not negotiatic
but, rather, discussions to review vari
issues of common concern. The Unite<
States and the Soviet Union share a
strong interest in preventing the
dangerous spread of nuclear weapons
and have agreed to use these consulta
tions as a forum for discussion and
exchange of views. ■

Department of State Bulle

AST ASIA

Corean Politics in Transition

y Gaston J. Sigur, Jr.

Address before the U.S. -Korea
teiety in New York City on February 6.
bgr. Mr. Sigur is Assistant Secretary
\r East Asian and Pacific Affairs.

'm delighted to be here with you today.
jve been looking forward to meeting
ith the U.S. -Korea Society for several
jonths. With scheduling the way it is in
lir bureau, it often is easier to get to
i;oul than to New York. I've had the
oportunity to visit the Republic of
|orea frequently over the past several
tars, most recently last November,
Jhen I talked with President Chun,
l-ime Minister Lho, Foreign Minister
hoi, and DJP [Democratic Justice
iirty] leader Rho, as well as NKDP

few Korea Democratic Party] leader
\ie and other opposition party leaders,
iiese visits have provided useful insight
;to the complex political process evolv-
b there, a process which will influence
\e security and general well-being of

e Korean people for generations to

me.

Next month, I expect to return to
( oul with the Secretary of State for a
1 ief visit following our mission to
' lina. It will be a good opportunity to

in, first hand, an update on political

d security conditions. In the mean-
|ne, I want to take this opportunity

day to share with you our govern-
Nnt's observations on the domestic

litical process underway in Seoul.

icing the Challenges

the past few decades, the Republic of
>rea has created a dynamic economic
stem and is now in the process of
sating an equally dynamic political
stem to carry the nation into the next
ntury. This task is being undertaken
lid unique circumstances. The
(public of Korea faces a determined
d well-armed foe, committed to
unification of the peninsula on its own
rms by whatever means are necessary.
iuth Korea also faces the stresses and
rains of industrialization, which
veloped over a period of generations
> the West but which is taking place
nost overnight in Korea. In these cir-
mstances, the new political system
>w debated in Seoul must provide

security and dynamism for the continued
parallel development of economic, social,
and political institutions.

Few countries face as direct and sus-
tained a threat to their very existence as
does the Republic of Korea. Over the past
40 years, North Korea's Kim II Sung
has tried virtually every tool available—
from all-out war to assassination to
"peace offensives"— to destroy or eclipse
the Republic. As everyone in this room is
well aware, the cost of these misbegot-
ten policies has been tremendous for
Koreans, both north and south.

The Korean war exacted a terrible
toll in human suffering, and its repercus-
sions are still evident. Today, a band of
steel still stretches across Korea's
beautiful mountains and rivers from one
sea to the other. In the past few
decades, the North has doubled the size
of its armed forces and increased its
weaponry with vast assistance from the
Soviet Union. The threat to South Korea
is still very real.

During the same period the South,
with U.S. support, has made steady
progress toward modernization of its
defensive capabilities. The improvements
have been largely in equipment and
training, neither of which come cheap.
South Korea has been devoting some 6%
of its gross national product to this
effort. Furthermore, this significant
investment is being made at the same
time that the Republic of Korea has been
undertaking one of the world's most
impressive programs of economic
development and industrialization.

Strong Economic Base

Korea is one of the nations to which the
term "newly industrializing country" is
aptly applied. Over the past 5 years, the
Republic of Korea has maintained an
average annual economic growth rate
of over 8%, following an earlier decade
of equally impressive economic
development.

During this time South Korea moved
from being a recipient of U.S. aid to
America's seventh largest trading part-
ner. Today, the United States has more
trade with South Korea than with many
of our traditional European trading part-
ners. In 1986, total bilateral trade was
some $19 billion. The United States is
South Korea's single biggest market,
buying $13-billion worth of Korean prod-
ucts. Footwear and apparel top U.S.

imports from Korea, but Americans have
also become very fond of Korean-made
electronic products, from TVs to
microwave ovens and small computers.
Furthermore, Korean firms have been
moving into new areas as well— witness
the increasing number of sharp Hyundai
automobiles on American roads.

It bears emphasizing that the
Republic of Korea is also a major market
for U.S. goods and services. The South
purchased about $6-billion worth of
American goods, services, and
agricultural products in 1986.

Economic success has changed South
Korean society in fundamental ways. In
1960, the average per capita gross
national product was $100. Today, it is
over $2,000. In 1975, almost one-third of
all South Koreans were engaged in
agriculture. Today, that proportion is
down to one-fifth. Koreans have moved
rapidly to their cities; over half now live
in urban areas. Seoul alone accounts for
one-quarter of the population.

South Koreans, whose drive for
learning is an enviable national
characteristic, are better educated than
ever before. Today, 98%— one of the
world's highest percentages— are
literate. Korean colleges and universities
enroll more than 1 million students.
Korean mothers tell their high school
student children that they must study
long and hard: "Five hours sleep a night
means success; six hours means failure."

New Stresses

The Republic of Korea faces new
stresses in many sectors of its society,
which will require a political system
capable of building consensus through
discussion and compromise. On the
economic side, South Korea faces many
new challenges as it moves into indus-
tries based on more sophisticated
technologies. Firms like Gold Star, Sam-
sung, and Daewoo are, for example,
already producing integrated circuits
and computers. At the same time,
Koreans realize they must accept certain
responsibilities, such as more open
markets, commensurate with their new
role as an international trader of some
consequence. South Korea has earned
full membership on the team. With that
full membership comes the obligation to
help maintain the free trading system
from which it has benefited so greatly.
Naturally, such profound changes in
economic behavior in such a short
time are difficult, but they must be
accomplished.

oril 1987

EAST ASIA

Korean society faces a wide range of
other challenges deriving from industri-
alization. Success in meeting these
challenges will require a creative,
responsive political system. Seoul needs
to decide, for example, on the appro-
priate amounts of national resources to
invest in social capital— schools, medical
facilities, and so forth— and how to con-
tinue to assure equitable distribution of
the benefits of economic success. As the
work force becomes more sophisticated,
Korea has also to deal with the difficult
problems of workers' rights, including
safety and labor organizations and the
role of unions. Koreans are beginning to
address such complex issues. Last year,
the National Assembly passed new
legislation that permits national labor
organizations to participate in individual
labor actions. Another effort has begun
to establish minimum wages. These
issues will not be solved overnight. A
more open political system will be a
critical part of the solution.

The Move Toward
Political Maturity

Everyone understands the fundamental
linkage between a nation's domestic
political maturity and its general secu-
rity. The two elements are mutually
dependent. The Republic of Korea's
security relies as much upon responsive
political institutions that promote the
aspirations of its people as upon the
mighty military capability it possesses.
By the same token, of course, political
transition must proceed at a pace con-
sistent with harmony and stability.
Secretary of State Shultz has pointed
out that transitions toward greater
democracy are "often complex and
delicate, and. . .can only come about in a
way consistent with a country's history,
culture, and political realities." We
recognize that.

At present, there appears to be a
general consensus among South Koreans
of various political persuasions that
domestic political practices up to now—
however well suited they may have been
for a simpler, slower moving past—
simply are inadequate to meet Korea's
complex present and future needs.

First, there is the problem of the
peaceful transfer of power from one
leader to the next. President Chun Doo
Hwan himself has pointed out that the
country cannot afford long periods of
one-man rule ending in violence and con-
frontation. Koreans also face the
challenge of permanently "civilianizing"
their politics— of calling upon the full

range of their talent resources to lead an
increasingly complex economy and
society.

The Korean military has played an
important role in various aspects of the
Republic's recent development. But
Seoul is now moving into a new era.
After the destruction of much of the
civilian sector by the Korean war,
Korea's military men were a significant
group among the relatively small
number with experience in administering
large, modern organizations. Today,
however, many South Koreans have a
wealth of experience and have operated
successfully in a wide variety of fields to
ensure progress in a modern society.
Korea's industry and business compete
aggressively and impressively on the
world stage. Its universities produce
world-class scholars.

In addition, new technologies have
thrust greater complexities into modern
defense efforts. Today's soldier lives in a
new era in which Korea's national
security demands his full-time concentra-
tion and energy to accomplish his vital
primary mission: mastering the skills
needed for the defense of his country.

Laudable Initiative

President Chun has recognized these
trends and moved to implement the
changes in the Republic of Korea's
political institutions necessary to meet
the demands of the next century. He has
pledged to break the historical cycle of
succession, instability, and uncertainty
by peacefully transferring power at the
end of his term in February 1988. The
President has made a historic commit-
ment toward greater democratization in
South Korea: he has said that he will be
the first major Korean president to
retire from office peacefully, in order to
set the pattern for future Korean
leaders. He will join a pool of retired
statesmen, no longer active in politics,
whose counsel and advice will be a
valuable national resource. It is now the
task of the Korean people to establish a
system which will ensure that such
peaceful transfers of power continue into
the future.

President Chun deserves credit for
his promise, and history will praise his
service to the nation by making good on
it. In keeping this pledge, he also thrusts
obligations on all his compatriots: to sup-
port a peaceful process while eschewing
violence and to deal responsibly with the
new phenomenon of a once-powerful
president who has retired.

President Chun, the Democratic
Justice Party, and the New Korea
Democratic Party all deserve credit as
well for recognizing the need for and
starting the process of constitutional
revision. Although political differences
must be played out, most outside
observers are concerned that, to date,
there seems to have been more argu-
ment than real discussion and— as a
consequence— more rhetoric than
results. It is essential for the future of
the Republic of Korea, and for the futu
of our bilateral relations, that any new
constitution, and the laws which suppoi
representative government, create a
more open and legitimate political
system.

A Consensus Process

History demonstrates that to be durabl
constitutions must be carefully con-
structed. They emerge from compromi
and consensus among the major politic
players, not from violence, abuse of
physical force, or obstinate confronta-
tion. Lasting constitutions encompass
broad principles, such as free and fair
elections in an open atmosphere. Agre<
ing on such principles requires that pec
pie work together for the future, putti:
aside personal ambitions and past accu
sations and grievances. Put another
way, any new system must enlist the
constructive energies of all South
Koreans, emulating the way that
economic development has brought
together people of divergent back-
grounds and used the talents of every
man and woman.

Only if it is created through a con-
sensus process can South Korea's evol
ing political system have the dynamisn
and the durability to prosper into the
next century. Only in this way will it
have the firm support of Korea's peopl<
support which is vital if Korea is to
break the tragic cycle of unexpected an
violent changes of government. Only
popular support can give the stability
which the Republic of Korea needs to
meet the challenges to its national and
its economic security in the future.

The task is not an easy one, but
Koreans know the time is ripe for
beginning.

First, the combined South Korean
and UN Command forces present a for-
midable shield behind which the process
of political change can take place.

Second, the Korean economy did
well last year. The Republic of Korea
had a surplus in its current accounts foi
the first time, and this year also prom-
ises to be a good one.

Department of State Bulle

EAST ASIA

Third, and perhaps most impor-
intly, Koreans want change. They are
etter educated than ever before and
•ave a new self-confidence— a "can-do"
ttitude— after their success in develop-
lg their country's economic strength.

The Republic of Korea's political
.aders have committed themselves to a
■?w course. President Chun has pledged
•i transfer power peacefully and has
arted the process of constitutional revi-
,on. The other major political actors on
Dth sides are men who know from their
wn experience the consequences if this
lance is missed. They lived through the
Drrors of the Korean war and past
jlitical traumas amidst uncertainty and
olence. They know that an orderly
'stem for changing governments is a
jcessity for their country's security and
•osperity. In the hurly-burly of day-to-
vy political activity, it is easy to lose
ght of the big picture; but these men
ive the breadth of mind to pause and
fleet and act constructively, not for
irrow partisan interest but for their
untry.

Regardless of what specific govern-
ental system emerges from the current
bate, it surely must reflect elements of
ienness, fairness, and legitimacy. We
juld hope for further innovative pro-
sals from participants in this process,
oposals which statesmen in both the
ijority and minority parties will con-
fer with open minds and an eye toward
cessary compromise. Innovative ideas
n serve as an agenda to move the revi-
>n process out of the morass into which
has fallen.

The 1988 Olympics will give South
>reans a chance to show off the results
their hard work to the world. Their
untry has certainly become a model of
onomic development, and many
tions will be justly impressed. The
ne remaining before the games also
/es South Koreans the opportunity to
nstruct the kind of political institu-
ms, the kind of political model, that
ey would like the world to see.

r fer Our Support

iuth Koreans developed their economic
stem step by step and by their own
rd work. They will build a new
litical system in the same way. The
lited States can and will support this
fort as it did economic development,
thout interfering in domestic affairs,
e shall do so in a number of ways.

Philippine Constitutional Plebiscite

WHITE HOUSE STATEMENT,
FEB. 3, 1987'

On February 2 an estimated 20 million
Filipinos went to the polls to vote on a
new constitution. This plebiscite is a
significant milestone on the path of
democratic renewal which President
Aquino has charted for the Philippines.
Representative civilian government
is the very essence of the democratic
process. In view of our own history and
values, it is an institution the United
States encourages vigorously and sup-
ports totally. We congratulate the people
of the Philippines on their latest, suc-
cessful exercise in democracy and wish

them equally well in the political con-
tests ahead.

The United States pledges continu-
ing support for President Aquino's
courageous efforts to maintain her
fellow Filipinos' freedom and participa-
tion in the political process. These are
the surest guarantees that the Philip-
pines will achieve the internal harmony,
political stability, and economic pros-
perity it needs and has earned.

The President has sent President
Aquino a message conveying his per-
sonal congratulations on the successful
conclusion of the plebiscite.

'Text from Weekly Compilation of
Presidential Documents of Feb. 9, 1987. I

First, the United States will con-
tinue to work with the Republic of
Korea's Armed Forces to maintain and
strengthen the military shield which pro-
tects the country. The American commit-
ment is firm and will remain so, regard-
less of changes in the Congress or even
in administrations. At the same time, we
will support the Republic of Korea in its
efforts to reduce tension with the North.

Second, we shall continue to support
an open international trade system. This
system is the bedrock upon which
Korea's present and future prosperity
depends. Korea is rich in human
resources but lacks many raw materials.
The continuation of free trade between
nations is clearly vital to the Republic.
One need only observe the stagnation of
the North Korean economy to get a good
idea of how unproductive that society's
go-it-alone approach to development has
been. The Reagan Administration will
continue to fight for the preservation of
this beneficial system. But we will need
help from our friends. From this per-
spective, the present trade negotiations
between Seoul and Washington repre-
sent not an agenda of so-called American
demands but rather our "request for
assistance" in maintaining a dynamic
and healthy international commercial
system. We must pursue this effort in
the face of rather strong protectionist
forces in the United States and
elsewhere that threaten our mutually
beneficial trade.

Finally, the United States will con-
tinue to encourage all sides in Korea to
work together to create a new political
framework. The United States
wholeheartedly supports the important
process of constitutional and legislative
reform as the means to this end. In that
process, we will provide positive sup-
port, not interference. We do not and
shall not support any particular proposal
by any Korean political party; but we
shall continue to urge accommodation,
compromise, and consensus. Both sides
have made eloquent arguments concern-
ing the virtues of their respective ideas.
It is for Koreans, not outsiders, to decide
what institutions and mechanisms best
fit their country's needs. We urge all
sides to sit down and work together
toward constructive proposals.

Conclusion

Citizens of the Republic of Korea have a
historic opportunity to create with their
own hands new political forms to match
the vitality of their economy and society.
Clearly, old patterns no longer suffice.
Equally clearly, creating new ones will
require courage and self-sacrifice on the
part of the statesmen who undertake the
task. We Americans are fully behind the
Korean people in this tremendously
important effort to create a new political
system with the vitality and solid
popular support to carry their country
successfully into the next century. ■

pril 1987

ECONOMICS

U.S. Trade Policy
and the Trade Deficit

by Clayton Yeutter

Statement before the House Ways and
Means Committee on February 10, 1987.
Ambassador Yeutter is U.S. Trade-
Representative. 1

I am pleased to appear before you today
to discuss U.S. trade policy and the
trade deficit. This hearing takes place 1
month after the introduction of H.R. 3,
the trade provisions of which are iden-
tical to those in H.R. 4800 passed by the
House last year. I know you are all
aware of the views of the Administration
on those provisions, and I do not intend
to belabor them here this morning.

I am very pleased with the bipar-
tisan cooperation members of this com-
mittee have shown in their desire to
craft responsible, effective trade legisla-
tion in 1987. The administration looks
forward to working with you throughout
that process. Our bill will be before you
shortly. In developing that bill, we were
guided by several overarching considera-
tions. For example, we considered
whether each proposal would:

• Facilitate the competitiveness of
U.S. industry;

• Conform to our international
obligations;

• Enhance our leverage in the
Uruguay round and in other interna-
tional trade negotiations;

• Provoke costly retaliation against
U.S. exports; or

• Invite our trading partners to
enact mirror legislation, to the detriment
of U.S. exports.

These are the same tests we will
apply in considering proposals
emanating from the Congress.

Let us turn now to one of our most
challenging national problems— the trade
deficit.

U.S. Trade Deficit

In 1986, the United States had a mer-
chandise trade deficit of $169.8 billion.
The deficit has grown as a consequence
of rising imports in recent years while
exports have been essentially unchanged
[Table 1]. In 1986, imports were 7%
higher than in 1985 and up over 50%
from 1980. Rising imports were to be
expected following 1982, when

America's economy began expanding
again. Of greater concern is that during
this same period, exports have remained
flat, rising only about 2% this past year,
and they still remain slightly below their
1980 level.

The 1986 merchandise trade deficit
grew vis-a-vis virtually every major U.S.
trading partner [Table2]. In dollar terms,
the biggest shifts occurred in trade with
the European Community [EC] and
Japan, but countries such as Korea and
Taiwan now also have major surpluses
with us. In terms of product com-
ponents, changes in our manufactures
trade dwarf any other shift. In manufac-
tures, there has been a net swing of
-$158 billion since 1980.

As the U.S. merchandise trade
deficit has worsened, so has the current
account deficit, which for 1986 (on the
basis of three quarters' data) is
estimated to be about $140 billion. The
1986 current account deficit was 19%
larger than in 1985. As recently as 1981,
we had a current account surplus of $6.3
billion. The current account is the
broadest measure of our international
trade, including not only the merchan-
dise trade balance but also the balance
on trade in services, investment earn-
ings, and transfers.

The deterioration in America's trade
and current account balances should con-
cern all of us. However, before we try to
"do something," we ought to understand
just what the problem is. We will see a
permanent turnaround in our trade and
current account balances only if we take
actions which address their real causes,
rather than their perceived causes.

The growth in the current account
deficit is, by definition, the mirror image
of the growth in net foreign capital
imports [Table 3]. In recent years, we
have gone from being a large net capital
lender to a substantial net capital bor-
rower. Between 1982 and 1986, we bor-
rowed almost $420 billion more than we
loaned overseas. In other words, our
problems are as much capital related as
they are trade related.

Let me briefly explain how the cur-
rent account deficit mirrors our net
foreign capital imports. Over the last
few years, foreign lenders and investors
have found the United States a par-
ticularly attractive haven for their funds.
Sustained noninflationary growth,

l«

relatively low taxes, business deregula
tion, and relatively high real interest
rates have all helped to attract foreign
funds.

In order to invest or lend here,
however, foreigners have to purchase
dollars in foreign exchange markets.
That strong external demand caused a
substantial appreciation in the dollar's
value during the first half of the 1980s.
That appreciation, in turn, was a majoi
factor in our large trade and current
account deficits. After all, not many
Americans give dollars to foreigners sc
that the latter can invest here.
Foreigners earn those dollars by selling
us goods and services.

Our trade and current account
deficits supply the dollars purchased bj
foreigners in foreign exchange markets
to invest here. Under the flexible
exchange rate system, the value of the
dollar moves whenever necessary to
equate the value of capital inflows with
the current account deficit. Conversely
there is no way for our current account
deficit to decline without a correspond-
ing reduction in our net capital inflows
(our net foreign borrowing).

The fundamental question then is:
Why are we borrowing so much from
overseas? The answer is that our
national pool of savings— the positive
savings of private households, corpora-
tions, and state and local governments-
is insufficient to meet the combined
expenditure demands of private invest-
ment plus the large Federal budget
deficit. The gap-3.3% of GDP in
1986— between domestic savings, on th
one hand, and private investment plus
Federal budget deficits must be made i
by borrowing substantial amounts of
capital from abroad. This borrowed
capital allows us to keep our investmen
spending at current levels rather than
reduce them to the level of domestic sa
ings as would otherwise be necessary.
We are saddling future generations of
Americans with a growing domestic an>
foreign debt burden so that we can enjc
greater comforts today. Would that our
grandchildren were to understand what
we are doing to them.

One reason low net U.S. saving is
not sufficient to meet domestic expendi
ture is that there has been substantial
dissaving, in the form of large budget
deficits, by the Federal government. Th
most important action we as a nation
can take to improve the trade deficit an
enhance U.S. competitiveness is to boos
domestic saving by cutting the Federal
budget deficit through reductions in
government spending. An attempt to cu
the budget deficit by raising taxes woul<
be counterproductive.

Department of State Bulled

ECONOMICS

A second important factor con-
tributing to the worsening of our trade
and current account deficits has been
slow economic growth in many of our
industrialized trading partners. This, of
icourse, impedes growth in our exports.
Were our overseas trading partners to
(grow faster, the net effect on U.S.
:exports would be positive. In addition,
those countries would become more
attractive to global investors, thereby
reducing the demand for dollars to
(invest in the United States. (The latter is
•a two-edged sword, of course. A
slowdown in foreign investment here
will drive up interest rates, unless we
also take steps to boost domestic
savings.)

Finally, our trade and current
account deficits are related to the debt
:risis in the developing countries.
Secretary [of the Treasury] Baker has
Covered this point, so I will only say that
heavy debt burdens have caused many of
)ur Latin American trading partners to
■ -educe their imports from us while
lj xtosting exports to the United States in
>rder to service their debts. That may
; lave been a prudent and necessary
, strategy in the short run. It is not
lj lecessarily a sound strategy, either for
Ithem or for us, in the long run.

The Positive Side

t is important to keep all this in
terspective. Notwithstanding our pres-
:nt trade woes, the United States is still

- me of the world's most competitive and
iroductive economies. We can and must
lo better, but our competitive posture
oday is far superior to what it was 2 or

1 1 years ago. The restoration of sus-
ained, noninflationary growth is an
.ccomplishment of which the Admin-
stration, the Federal Reserve, the Con-
gress, and the American people can be
iroud.

Beginning in 1981, President
leagan and the Congress worked
ogether to unleash the inherent power

ki our economy by dramatically reducing
he tax burden borne by Americans. As
i consequence, our economy is far
stronger and more vibrant than it was
vhen the Administration first took
>ffice.

In 1981 America was in the grip of
he highest inflation rate ever seen in
.his country. Inflation was silently steal -
ng money from the pockets of all of us.
I Since 1980, however, inflation has been

|:ut from over 12% to 1.1% in 1986, the
■owest level in 25 years.

Accompanying this fall in the rate of
inflation has been a significant drop in
interest rates. The prime rate has been
cut by almost two-thirds, from a crippl-
ing high of 21.5% in January 1981 to
7.5% in December 1986. Housing has
once again become affordable to
Americans, sparking a boom in the
domestic housing market.

Our ability to create jobs for
Americans is the envy of the rest of the
world. Nearly 13 million new jobs have
been filled since 1980, and more than
61% of our people over the age of 16 are
employed, the highest level ever. While
civilian unemployment remains too high
at 6.7%, it is now the lowest it has been
since the end of 1979.

The Administration and the Con-
gress together have completed a major
overhaul of the tax system. The new
system, which starts to take effect this
year, will make our Federal income tax
simpler and fairer for millions of
Americans.

Thanks to the efforts of Treasury
Secretary Baker, [Federal Reserve]
Chairman Volcker, and their counter-
parts in other major industrial countries,
we have seen a growing degree of
macroeconomic coordination.

The totality of these and other
economic policies has helped create over
49 months of sustained economic expan-
sion, one of the longest periods of con-
tinuous growth since the Second World
War. This growth has boosted national
wealth, given Americans higher real
incomes than ever before, and raised our
standard of living.

Trade Policy and
the Trade Deficit

Hand-in-hand with these general
economic accomplishments have been
numerous victories in the trade policy
area. The Administration remains com-
mitted to its policy of free and fair trade.

Table 1

Trade and Current Account Balances
(US$ billions)

Merchandise Trade (Census basis, imports valued c.i.f.)

U.S. Exports U.S. Imports

1980
1981
1982
1983
1984
1985
1986

220.6
233.6
212.2
200.5
217.9
213.1
217.3

257.0
273.4
254.9
269.9
341.2
361.6
387.1

Balance

- 36.4

- 39.8

- 42.7

- 69.4
- 123.3
-148.5
-169.8

Current Account Balances

Direct

Other

Merchan-

Business

Invest.

Current

dise**

Services

Earnings

Other***

Account

1980

- 25.4

7.6

28.5

1.9

-10.7

1.9

1981

- 28.0

9.6

25.7

8.4

- 9.9

6.3

1982

- 36.4

9.1

18.2

10.4

-10.4

- 9.1

1983

- 67.1

6.4

14.9

9.9

-10.7

- 46.6

1984

-112.5

2.3

12.3

6.5

-15.1

-106.5

1985

- 124.4

0.4

26.3

-1.1

-18.9

-117.7

1986*

-146.4

4.6

31.2

-8.4

-20.6

-139.6

•Annualized from the first three quarters of 1986.
"The merchandise trade deficit as reported in the current account is smaller than on the
more widely reported Census basis. The exclusion of insurance and freight charges from mer-
chandise import valuations in the balance of payments, together with other technical adjust-
ments, cause this difference in the valuation of the trade balance.

** 'Includes military transactions, government services, and unilateral transfers.

Sources: Survey of Current Business, U.S. Department of Commerce and UN Trade Statistics.

<\pril 1987

ECONOMICS

Table 2

Selected Bilateral U.S.

Merchandise Trade Balances— 1980-86
(USS billions)

1980

1981

1982

1983

1984

1985

1986

Japan

-12.0

-18.0

-19.0

-21.7

-36.8

-49.7

-58.

Canada

-6.6

-7.3

-13.1

-14.3

-20.4

-22.2

-23.

16.3

8.7

3.5

-1.6

-13.3

-22.5

-26.

Germany

-1.9

-2.1

-3.8

-5.0

-9.4

-12.2

-15.

Mexico

2.4

3.8

-4.0

-7.9

-6.3

-5.8

-5.2

Korea

0.0

-0.5

-0.7

-2.0

-4.2

-4.8

-7.

Taiwan

-5.4

-7.7

-11.3

-13.1

-15.

Brazil

0.3

-1.0

-1.2

-2.9

-5.0

-3.

Sources: U.S. Department of Commerce and the Office of the U.S. Trade Representative.

However, if trade is to be truly free for
all countries, it must be conducted by
essentially the same rules everywhere.
We have challenged and will continue to
attack foreign unfair trade practices and
trade barriers whenever and wherever
they exist. They undermine the basic
concepts on which the postwar trading
system was built— equal access to open
markets. And to individual industries
and firms, foreign trade barriers and un-
fair trade practices can and do cost large
amounts in lost sales opportunities.

The Administration has made major
progress in removing foreign impedi-
ments to U.S. trade. I will submit an
overview of this as an appendix to my
testimony today. Let me summarize
some of those actions.

Through the judicious use of Section
301, we have reached agreements with
many of our trading partners to
eliminate or substantially reduce bar-
riers to U.S. exports. More than 60% of
all Section 301 trade actions have been
launched under this Administration. Fur-
ther, President Reagan was the first
President to self-initiate Section 301
cases. We have initiated eight such cases
since September 1985 and have brought
seven of them to a satisfactory
resolution.

In response to a Section 301 case,
Japan will open its cigarette market.
This could raise U.S. exports substan-
tially. On semiconductors, we reached a
broad settlement of a Section 301 case
and two antidumping actions. In settle-
ment of a Japanese leather and leather
footwear case, the Japanese have agreed
to reduce or eliminate tariffs on 137
nonleather items, including five impor-
tant aluminum products, and they will
make permanent 242 earlier tariff
reductions.

In other Section 301 actions, we
negotiated settlements with Korea over
two separate cases involving insurance
and intellectual property. And the
United States and Taiwan have settled a
dispute over Taiwanese restrictions on
its beer, wine, and cigarette markets,
creating a probable $150 million in addi-
tional U.S. exports.

With the European Community, we
have just concluded a major dispute over
the enlargement of the EC to include
Spain and Portugal. Under the agree-
ment, the United States will receive full
and fair compensation worth $400
million for losses we would otherwise
have suffered in our corn and sorghum
exports to Spain. More than three-
quarters of the compensation came in
assured access for corn and sorghum;
the remainder in additional access on 26
other agricultural and industrial prod-
ucts. In other cases against the EC, we
have reached settlements on citrus,
pasta, almonds, and canned peaches and
pears, giving U.S. exporters an
improved chance to compete in the EC
market.

Section 301 is not the only tool the
Administration has used to ensure that
trade is conducted on an open and
equitable basis. At the end of December,
we settled a protracted subsidy/counter-
vailing duty dispute with Canada over its
lumber pricing practices. In the first use
of Section 307 authority by the United
States, Taiwan has agreed to eliminate
its export performance requirements in
the automotive sector.

We recently completed a 2-year
review of the generalized system of
preferences (GSP) program, during
which GSP beneficiaries were encour-
aged to improve intellectual property
rights protection and worker rights prac-
tices as well as eliminate barriers to U.S.

exports of goods, services, and invest-
ment. As a result of the review, the lev
of duty-free GSP benefits granted to
advanced developing countries will be
reduced by about $2 billion, or 23%. In
addition, three countries were denied
GSP benefits for failure to improve
workers' rights practices.

The United States and Japan have
made important progress in the market
oriented, sector-selective (MOSS) talks
to open markets to U.S. products. In
telecommunications, pharmaceuticals,
forest products, and electronics,
agreements were reached that should
increase market access for U.S. firms.
August 1986, another MOSS negotiatio
was launched on transportation
equipment.

In what may be our single most
important international endeavor for
1987, we are in the midst of negotiatior
on a comprehensive trade agreement
with Canada, our largest trading part-
ner. Merchandise trade flows between
our two countries totaled $114 billion in
1986. We believe those numbers will
grow dramatically if we are able to opei
up the border between our two nations,
and we also see a vast expansion of ac-
tivity in the services sector, in invest-
ment flows, and in capital movements
generally. These negotiations are com-
plex and very sensitive, but they are als
clearly in the economic interest of both
countries. We hope to bring them to
completion later this year.

The United States and more than 5(
of its major trading partners have suc-
cessfully renegotiated a renewal of the
multifiber arrangement (MFA) in tex-
tiles and apparel to 1991. The new MFA
expands coverage to previously uncon-
trolled fibers such as ramie, linen, and
silk blends. It also includes a mechanism

Department of State Bulleti

ECONOMICS

<;o prevent destructive import surges and
provisions to prevent fraud. During the
jiiscussions, we made it clear to our
trading partners that we would continue
,;o pursue measures in our bilateral
agreements negotiated under the MFA
■ o open markets to our textile exports.

Following a determination that a
substantial increase in imports of
nachine tools could threaten U.S.
national security, President Reagan
■ecently announced a program to
•evitalize the domestic machine tool
ndustry. As part of this program, the
'resident instructed Secretary [of Com-
nerce] Baldrige and me to discuss volun-
ary restraint agreements with Japan,
Taiwan, Germany, and Switzerland. We
lave now concluded agreements with
apan and Taiwan. Given recent
xchange rate movements, it is unlikely
hat machine tool imports from Germany
nd Switzerland will increase. If,
owever, there is a surge from those
ountries and if it threatens to under-
line our voluntary restraint agree-
lents, the President has reserved the
ight to take unilateral action. President
leagan has also approved a domestic
ction plan to boost the machine tool
ldustry.

laintaining and Enhancing
fj F.S. Competitiveness

'he growth in America's trade deficit
as caused some observers to question
'hether or not we can meet the
hallenge of the international
larketplace. President Reagan's answer
; an emphatic "yes, we can!" provided
usiness, labor, and government put
leir heads together and work
imperatively toward that goal.

While the world has changed con-
derably in the last 40 years, one con-
;ant remains. Other nations look to
.merica for economic leadership. We
an lose that leadership role only
irough our own inadequacies. It is
r e— no one else— who will determine
'hether we are internationally com-
etitive a decade from now. If we are
ot, we will have only ourselves to
lame.

In his January 27 State of the Union
ddress, President Reagan outlined a
road initiative to enhance U.S. com-
etitiveness. As the President noted, all
imericans must work together in a
ational "quest for excellence." This
administration is committed to doing its
art in fostering and promoting
imerica's ability to compete, as others
lust also do their part.

For its part, the Federal government
should create an environment in which
American business and workers can
achieve their full potential. As part of
the Administration's initiative to
enhance U.S. competitiveness, the Presi-
dent has proposed a wide-ranging set of
initiatives designed to do just that. The
multipronged program is aimed at:

• Increasing our investment in
human and intellectual capital;

• Boosting scientific and
technological development;

• Improving protection for intellec-
tual property rights;

• Refining our legal and regulatory
systems;

• Creating a favorable international
economic environment; and

• Eliminating the budget deficit.

Essential to enhanced U.S. com-
petitiveness is increased investment in
our most valuable national resources—
our human and intellectual capital. This
investment must start at the earliest
possible stage, when our children are in
school. One Administration goal is to
broaden and deepen our children's com-
mand of basic skills. In today's world,
knowing the three "R's" is not enough.
We live in a technological society in
which a knowledge of computer
languages is becoming as important as a

mastery of English. Americans must be
well-versed in every area, not only in
English but in the new language of
science and technology. The slide rule
has been replaced by the personal com-
puter, and our children had better know
how to use it!

Preserving human capital also means
helping those workers who become
displaced from their jobs. The President
will propose a new $1 billion worker
adjustment assistance program to help
experienced industrial and service
workers and farmers find new employ-
ment when they lose their jobs. It will
include job counseling and job search
assistance and training for workers long
before they exhaust their unemployment
benefits. There will also be an $800
million program for training needy youth
in welfare families. Under the leadership
of Secretary of Labor Brock, the Admin-
istration will also seek ways to improve
labor mobility, so that workers can move
more freely to areas where jobs are
being created.

America's competitiveness increas-
ingly depends on our ability to take
quick advantage of our knowledge and
technological breakthroughs. The
Federal government has at least two
roles in this area. First, it can promote
the generation of new knowledge and
technology. Toward this end, the Presi-

Table 3

Selected Data on U.S. Capital Flows— 1981-86
(US$ billions)

Item

1981

1982

1983

1984

1985

1986*

Capital Outflows ( - )

-111.0

-121.3

-50.0

-23.6

-32.4

-90.0

of which

Debt

-96.2

-117.2

-44.6

-15.9

-5.9

Equity

-9.6

0.9

-4.3

-5.0

-22.7

Capital Inflows ( + )

83.3

94.1

85.5

102.8

127.1

204.4

of which

Debt

53.1

76.7

67.2

78.3

104.4

Equity

30.2

17.4

18.3

24.5

22.7

Net Capital Flows

-27.7

-27.2

35.5

79.2

94.7

114.4

of which

Debt

-43.1

-40.5

22.6

62.4

98.5

Equity

20.6

16.5

14.0

19.5

0.0

Current Account

Deficit

6.3

-9.1

-46.6

-106.5

-117.7

-139.6

Errors and Omissions

21.4**

36.3

11.1

27.3

23.0

25.2

* Annualized on the basis of 9 months' data.
** Includes allocation of special drawing rights.

Note: In the categories "Capital Outflows" and "Net Capital Flows," debt plus equity do not
equal the total capital flow because of changes in U.S. official reserve assets.

Source: Survey of Current Business, U.S. Department of Commerce.

April 1987

ECONOMICS

dent will put forward several initiatives
designed to foster U.S. research and
development. Among these are science
and technology centers that will focus on
basic science that directly affects our
competitiveness; increased incentives to
research and development; the encour-
agement of technology sharing among
the government, universities, and
business; and accelerated spinoffs from
defense technologies.

Promoting increased knowledge and
technological development is only half
the battle. It will do us little good if we
develop new technologies, only to have
them immediately pirated by other coun-
tries as has so often occurred this past
decade. The Administration is firmly
committed to improving protection for
U.S. intellectual property rights at home
and abroad. We will seek improvements
in domestic law to give greater protec-
tion to holders of such rights, and abroad
we will take into account the degree to
which a country protects intellectual
property rights when we negotiate
treaties or provide assistance. We also
plan to join the Bern Convention for the
Protection of Literary and Artistic
Works.

We must examine our laws and
regulations for unnecessary burdens on
American business. Oftentimes, the
greatest hurdle for an American
exporter is our own rules. Instead of
promoting exports, we discourage them!
Among the areas that we will have pro-
posals on are changes in product liability
laws to reduce spiraling insurance costs;
reform of our antitrust laws so that they
reflect the reality of global markets;
improved export controls; additional
reforms to eliminate unnecessary
regulatory burdens; deregulated surface
transportation and natural gas; and a
strengthened private pension system.

Trade Legislation

and the Uruguay Round

The United States is the world's most
important trading nation. Through
trade, we have stimulated economic
growth, taken advantage of economies
of scale, encouraged innovation, and
ensured a higher U.S. standard of living.
Some 5 million American jobs depend on
exports— more than in any other nation.
The days when we could wall ourselves
off from the rest of the world are gone,
never to return.

That is why the Administration, as
part of its program to enhance U.S. com-
petitiveness, will be submitting a
substantial package of trade legislation

to the Congress. It is our hope that we
can work together to give this legislation
the serious and thorough consideration it
deserves.

One of our legislative goals is to
improve the scope and functioning of
U.S. trade law. In so doing, we will sub-
mit amendments to Section 201 of the
Trade Act of 1974 to expand the range
of relief remedies available to the Presi-
dent and to help ensure that industries
receiving Section 201 relief will be truly
competitive following the period of
relief. We will propose including
reciprocity as a factor to be considered
under Section 301— our most powerful
trade weapon— in deciding whether a
government's practices are
"unreasonable." We will also propose a
firm time limit for settling all Section
301 disputes and regular reports on the
commercial effects of Section 301
actions. Our antidumping and counter-
vailing duty laws should be tightened to
prevent circumvention. In addition, the
antidumping law should be amended to
improve its application to nonmarket
economies. Our legislative proposal will
also contain a request for authority to
implement the harmonized system of
tariffs.

The other goal of our proposed
legislation will be to give us the tools to
improve the international trade
environment.

The tool we need most is fast-track
negotiating authority for the Uruguay
round, and our legislative proposal will
request this authority. Past experience
has shown that we must offer reasonable
assurance to our negotiating partners
that the results of a multilateral round
will be considered— and implemented—
by the Congress on an expedited basis.

Experience has also shown that it is
critical for us to consult frequently and
work closely with the Congress and the
American public throughout such a
negotiating exercise. The procedures
used in the Tokyo Round were highly
successful. They involved consultation
with the Congress and the public
through each step of the negotiation. As
part of our request for trade negotiating
authority, we will include provisions for
even more extensive consultation during
the Uruguay round.

We want a successful conclusion to
the Uruguay round for several reasons.
As they try to do business overseas,
Americans face numerous trade barriers
and other trade distortions. Frequently,
these barriers are legal under interna-
tional trade rules, such as tariffs or, like
services, are not covered at all by the
rules. Just as frequently, they do not

lend themselves to remedy through
unfair trade actions. The authority to
retaliate under Section 301, for exampk
can be effective in specific, well-chosen
cases but is impractical where problems
are widespread or there is not interna-
tional consensus over the fairness of a
practice.

Therefore, the most effective way t<
attack many of these barriers and prac-
tices is through international negotia-
tions. That is why the United States
pressed so vigorously for the start of a
new round of multilateral trade negotia
tions. Thanks to our efforts, and those c
many like-minded nations, the latest
round of multilateral trade talks was
launched on September 20, 1986, by the
92 nations of the General Agreement or
Tariffs and Trade (GATT).

If successfully concluded, the
Uruguay round will assist America's
trade performance by strengthening am
improving existing trade rules and
expanding the coverage of the rules to
new areas. Where the GATT rules are
weak, such as in agriculture and dispute :
settlement, we will work to strengthen
and improve them. Where the rules are
nonexistent— as in intellectual property
services, and trade-related investment-
we seek new regimes for ensuring that
trade in these areas is conducted on a
free and fair basis. Our goal for the
negotiations is to substantially increase
the share of total world trade under
some form of international discipline an
to make certain the discipline is
effective.

The participating nations have now
agreed on a negotiating program and
organization for the Uruguay round. Th
first phase of negotiations begins this
week in Geneva. During 1987, the par-
ticipants are committed to putting fort!
detailed negotiating plans and proposal!
in different areas of trade activity. It
will be the most comprehensive trade
negotiation ever undertaken. Intense
bargaining should begin next year, and
our goal is to complete all negotiations
by 1990. Hopefully, some facets of the
negotiation can be completed and
brought back for congressional approval
at an earlier date.

Conclusion

Numerous alternative policy solutions
for the U.S. trade deficit have been
discussed in the Congress, the public,
and the press— an import surcharge, oil
import fees, export promotion and sub-
sidy programs, forced reductions of
bilateral trade surpluses by major U.S.

Department of State Bulletir

ECONOMICS

rading partners, and the tightening of
7.S. trade laws and programs.

Many of these proposals are of
dubious merit; some would be very
armful to U.S. interests. In general,
hey blatantly ignore our international
ommitments and responsibilities. This
./ould invite retaliation, shrink trade,
low everyone's economic growth, and
oost our inflation rate. Aside from their
■pecific shortcomings, these proposals all
hare one basic flaw— they fail to
ddress the fundamental causes of the
*ade deficit.

They fail because they attempt to
orce "traditional" trade policy instru-
lents, such as our trade laws, to solve
roblems they were never designed to
i lolve. The proposals focus mainly on

lechanisms which directly affect trade
|ji goods— tariffs, quotas, retaliatory
uthority, export promotion activities,
tc. Even where such proposals move
jtside of the traded-goods sector and
ito the areas of services, intellectual
roperty rights, and investment, they
Bsume that the only tools we need to
;e to bring down our trade deficit are
ade policy and trade laws.

Such matters are a legitimate sub-
ct for public debate. Traditional trade
)licy is still important, and we are
orking very hard at it. But let us
■cognize that it is not responsible for
hiuch of the recent expansion in our
ade deficit. At most, foreign trade bar-
ers and unfair trade practices account
■r a very small portion of our trade
>ficit. Indeed, given the Administra-
on's record in attacking unfair foreign
•actices, if trade policy were a major
ctor in the trade deficit, we would
ready have eliminated a large chunk
it of it.

Actions in the trade area should be
ken because they are needed to main-
in and restore a sense of equity and
>enness in the international trading
stem. But they cannot be viewed as
1 e fundamental solution to our trade
•oblems.

In looking for such solutions, we
ust expand our horizons beyond those
' traditional trade policy. The Admin-
tration's competitiveness and trade
itiatives are positive, forward-looking,
id aggressive. They reflect President
eagan's confidence in America and its
;ople. We want to work with the Con-
•ess in a determined effort to enhance
ir competitiveness and expand our
> ternational trading opportunities so
llat we can guarantee a better future
)t only for all Americans but for all
utions.

APPENDIX

THE PRESIDENTS TRADE
POLICY: AN UPDATE

On September 23, 1985, President
Reagan outlined a trade policy consisting
of three parts: tough action against
other nations' unfair trade practices,
negotiations to liberalize world trade,
and international economic policy
reforms that would help both U.S.
exporters and import-sensitive
industries.

The President's policy has achieved
major progress on all fronts. Here is a
summary of its achievements.

Fighting Unfair Trade

Since September 7, 1985, President
Reagan has instructed U.S. Trade
Representative Clayton Yeutter to
initiate or take action on 11 unfair trade
practice cases under Section 301 of the
Trade Act of 1974. Ten of these cases
have been resolved and President
Reagan has issued an unfairness finding
in the other.

The aggressive use of Section 301
and other statutes is achieving results.

EC Enlargement. The European
Community (EC) agreed on January 30,
1987, to provide full compensation to the
United States for higher corn and
sorghum tariffs imposed in Spain follow-
ing that country's accession to the EC.
The $400 million compensation package
includes guaranteed imports of 2 million
metric tons of corn and 300,000 metric
tons of sorghum by Spain. Another
400,000 metric tons of grain may be sold
in Portugal as a result of elimination of a
requirement reserving 15% of the Por-
tuguese grain market for sales from
other EC member countries. The EC will
also lower tariffs on 26 other products to
provide additional market access and
extend all current EC tariff bindings to
Spain and Portugal. These actions were
taken after President Reagan had
announced retaliatory measures under
Section 301.

Japan Tobacco. Japan agreed on
October 6, 1986, to open its cigarette
market to U.S. cigarette exporters by
suspending its 28% tariff on cigarette
imports, by ending the discriminatory
practice of allowing deferred payment of
excise taxes by Japanese manufacturers,
and by eliminating distribution and price
approval problems. U.S. cigarette
exporters believe their exports to Japan

could quintuple, reaching $1 billion
annually. This settled a self-initiated
Section 301 case.

Taiwan Beer, Wine, and Tobacco.

Taiwan agreed to open its beer, wine,
and cigarette markets to American
exports, creating the possibility of an
additional $150 million in sales in these
commodities. This action was taken on
December 8, 1986, after President
Reagan instructed Ambassador Yeutter
to propose retaliatory action under
Section 301.

Japan Semiconductors. Japan
agreed on July 31, 1986, to open its
market to sales of U.S. semiconductors,
which should increase semiconductor
exports by $2 billion in 5 years. Japan
also agreed to help ensure that Japanese
companies will quit dumping computer
chips below cost in the United States
and third country markets. This settled
an industry -initiated Section 301 case
and two antidumping cases.

The Administration is monitoring
this agreement carefully in light of
apparent noncompliance by Japan. In
emergency consultations in Tokyo the
week of January 26, U.S. negotiators set
deadlines for Japanese actions to bring
them into full compliance with the
provisions of the agreement.

Brazil Informatics. In another self-
initiated Section 301 case, President
Reagan determined on October 6, 1986,
that Brazil unreasonably restricts
imports of computer technology, pro-
vides inadequate protection of intellec-
tual property rights for computer soft-
ware, and restricts investment in the
computer sector. Based upon progress
made to date and upon expectations of
future progress, President Reagan
decided on December 30, 1986, to pro-
vide an additional period until July 1,
1987, for Brazil to make improvements
in its informatics regime.

EC Citrus, Pasta, and Almonds.

The EC agreed on August 10, 1986, to
give U.S. citrus producers additional
access to the European market, ending a
16-year dispute on the EC's special
treatment for Mediterranean citrus
imports. The EC also agreed promptly to
solve the longstanding problem of sub-
sidies for EC pasta exports. And the
United States and EC agreed to tariff
reductions on other products that will
give U.S. almond producers additional
access to the European market. These
agreements were reached after Presi-
dent Reagan retaliated against the EC's
citrus preferences under Section 301,
raising pasta duties on November 1,

pril 1987

ECONOMICS

1985. (As part of the settlement, both
sides rescinded their retaliatory
measures.)

Japan Leather. Japan agreed on
December 21, 1985, to compensate the
United States for GATT-illegal leather
and leather footwear quotas by
eliminating tariffs on 137 items, includ-
ing five important aluminum products,
and making permanent 242 earlier tariff
reductions. In addition, the United
States imposed higher duties on
Japanese leather imports to the United
States. This settled a longstanding Sec-
tion 301 case on which the President set
a deadline for retaliation.

Japan Aluminum. Following con-
sultations required as part of the leather
agreement, Japan agreed on October 31,

1986, to accelerate tariff reductions on
aluminum imports.

Korea Insurance. Korea agreed on
July 21, 1986, to eliminate prohibitions
against underwriting by foreign firms of
life and non-life insurance, ensuring fair
access for U.S. firms to Korea's $5
billion insurance market.

Korea Intellectual Property. Korea
agreed on July 21, 1986, to offer
significantly greater protection to U.S.
intellectual property rights, including
patents, copyrights, and trademarks,
settling a self-initiated Section 301 case.

Korea Motion Pictures. A potential
Section 301 case was avoided when
Korea agreed on December 23, 1985, to
reduce its barriers on importing and
distributing of U.S. motion pictures,
television programs, and video
materials.

Taiwan Customs Valuation. Taiwan
agreed on August 11, 1986, to fulfill its
commitment to use the transaction
value, instead of an artificial duty paying
schedule, to calculate customs duties.
This action came after the President
directed Ambassador Yeutter to propose
retaliation under Section 301.

EC Canned Fruit. The EC agreed
on December 1, 1985, to phase out the
processing element of subsidies for can-
ned peaches and pears, giving U.S. can-
ned fruit exporters a chance to compete
in the EC market. This settled a long-
standing Section 301 case on which the
President set a deadline for retaliation.

In addition to Section 301, President
Reagan has used other statutes to fight
unfair trade.

Canada Lumber. On December 30,
1986, the United States and Canada
settled a longstanding dispute over
Canada's lumber pricing practices.
Canada agreed to implement a 15% ex-
port tax on lumber, thereby neutralizing
the effect of its lumber subsidies.

Generalized System of Preferences
(GSP). On January 2, 1987, Ambassador
Yeutter announced that President
Reagan will reduce the level of duty-free
GSP benefits available to advanced
developing countries by an estimated $2
billion, or 23%. This decision concluded a
2-year general review of the GSP pro-
gram which encouraged improved pro-
tection of intellectual property rights
and the elimination of foreign trade bar-
riers to U.S. goods, services, and invest-
ment. The President also decided to ter-
minate or suspend from the program
three countries for their failure to
improve their worker rights practices.

Taiwan Investment Restrictions.

Taiwan agreed on September 12, 1986,
to eliminate export performance require-
ments in the automotive sector. This
occurred after the President instructed
Ambassador Yeutter to initiate a case
under Section 307 against trade related
investment restrictions by Taiwan,
which had imposed export requirements
on a Japanese auto plant investment
there.

Brazil General Aviation Aircraft.

Following several years of consultations,
Brazil agreed in late 1985 to reduce
import restrictions on general aviation
aircraft by lowering tariffs from 50% to
20%, by granting import licenses for air-
craft under 7,000 kilograms within 30
days, and by making licensing pro-
cedures more transparent.

Japan Supercomputers. The United
States initiated a Section 305 investiga-
tion of Japan's supercomputer trade
practices on December 10, 1986, thereby
launching an interagency fact-finding
review of trade in one of America's most
advanced industries. The United States
and Japan will also discuss the issue of
Japanese procurement of supercom-
puters under the auspices of the market-
oriented, sector-selective (MOSS)
electronic talks.

Japan Rice. Ambassador Yeutter
announced a strategy for dealing with
Japanese restrictions on rice imports on
October 23, 1986. Under this strategy,
the United States will ask Japan to
honor commitments made in Punta del
Este, Uruguay, to roll back GATT-illegal
trade measures and to negotiate on all

agricultural issues during the Uruguay
round negotiations.

Japan Airport Construction. Japa
has assured the United States that
foreign companies will be able to com-
pete on a fair and equal basis in the
second and third construction stages a1
the $8.5 billion Kansai airport in Osaka
Bay. Consultations continue on
American participation in the airport
construction.

War Chest. On September 23, 198
the President proposed a $300 million,
3-year fund to counter predatory expoi
credit financing by U.S. competitors fo
projects in developing countries. Con-
gress appropriated $100 million last ye
for this purpose. The Administration is
seeking the additional $200 million for
the next 2 years.

Sweaters from China and Macau.

The United States used new authority
under the multifiber arrangement (MF
to establish quotas on such products as
ramie, linen, and silk-blends for the fir:
time on September 3, 1986, when,
following import surges in these prod-
ucts, it notified China and Macau that
intended to limit "new MFA fiber"
sweaters from those countries.

Japan Fish Quotas. GATT consult
tions requested by the United States
regarding Japan's quotas on fish— par-
ticularly herring and pollock— began oi
October 22, 1986.

Japan Agricultural Quotas. On Ji

15, 1986, the United States asked for i
GATT investigation of illegal Japanese
import quotas in 12 agricultural
categories, including fruit juices and
processed beef. A GATT panel has bee
established to investigate the U.S. claii

EC Airbus. On December 19, 1986
Ambassador Yeutter requested politica
level round of consultations with three
European governments on the Admin-
istration's complaint that they improp-
erly subsidize Airbus Industrie. Those
talks were held during the week of
February 2, 1987.

EC Meat Inspection. On March 31
1986, President Reagan instructed
Ambassador Yeutter to initiate an
inquiry under Section 305 into unnec-
essary inspection standards the EC
intends to enforce against meat import

Preshipment Inspection. Ambas-
sador Yeutter announced actions on
October 20, 1986, that will address
impediments to American exports

Department of State Bullet

ECONOMICS

caused by requirements by some coun-
ties that shipments be inspected by
jrivate companies in the United States
before export.

GSP Ethanol. On April 1, 1986, the
Resident determined that certain
?thanol mixtures were being imported in
lircumvention of U.S. law and would no
onger be eligible for duty-free treatment
.inder the generalized system of
references.

Shakes and Shingles. On May 22,

986, the President granted import
elief to the red cedar shakes and
.hingles industry under Section 201 in
he form of a declining tariff program.

Negotiating Trade Agreements

'resident Reagan is seeking a worldwide
legotiation to improve international
rading rules as well as a wide array of
ilateral agreements to open overseas
larkets for U.S. exporters and to shield
nport-sensitive industries from unfair
nports.

Uruguay Round. On September 20,
986, in Punta del Este, Uruguay, trade
linisters from the 92 nations in the
leneral Agreement on Tariffs and Trade
lunched comprehensive multilateral
*ade negotiations under the GATT. The
ilks will strengthen the international
-ading system so that U.S. manufactur-
lg, services, and agricultural industries
an better compete in international
larkets. The United States will seek
ew rules covering trade in services and
griculture, trade-related investment,
itellectual property protection, and
ispute settlement.

Canada FTA. A historic negotiation
'ith Canada designed to liberalize trade
etween the two nations began on June
7, 1986. If successful, the talks could
■ad to the virtual elimination of the
order for commercial purposes,
trengthening both countries' ability to
Dmpete in international trade.

Multifiber Arrangement (MFA).

extile exporting and importing nations
greed to a stronger and more com-
rehensive extension of the multifiber
rrangement on August 1, 1986. The
ew MFA extends product coverage to
ssentially all fibers and makes it easier
o prevent import surges.

Machine Tools. On December 16,
986, President Reagan announced that
apan and Taiwan had voluntarily
greed to restrain machine tool exports

to the United States for 5 years. He also
approved a domestic action plan that will
facilitate the industry's revitalization.
This program, which will last 5 years,
was undertaken for national security
purposes.

Japan MOSS. Important progress
was achieved in 1985 in the market-
oriented, sector-selective (MOSS) talks
with Japan to open markets for U.S.
products. A number of market-opening
measures are to be implemented while
talks will continue to open markets even
further.

In the telecommunications area, the
Japanese market was opened substan-
tially to American radio equipment and
services, terminal equipment, and net-
work services.

Barriers to imports of American
medical equipment and pharmaceuticals
were reduced by simplifying regulatory
procedures, eliminating administrative
delays, and making the rules and regula-
tions more understandable.

In electronics, several important
measures were approved that should
improve access by U.S. companies to the
Japanese market, including tariff reduc-
tions, improvements in the patent proc-
ess, participation by U.S. companies in
Japanese research and development
projects, and legal protection for
semiconductor chips and computer
software.

In forest products, the Japanese
Government has committed to tariff
reductions on wood and paper products.
The talks will now focus on nontariff
barriers.

On August 20, 1986, the United
States and Japan began negotiations on
the next MOSS negotiation area— auto
parts.

Japan NTT Agreement. On

December 23, 1986, Japan agreed to a
3-year renewal of the bilateral agree-
ment on procurement of telecommunica-
tions equipment by the Nippon
Telegraph and Telephone [NTT] Com-
pany. Under this agreement, the
Government of Japan must provide non-
discriminatory treatment for U.S.
products in procurement, ensuring the
ability of U.S. suppliers to compete in a
market that formerly was closed to
foreign suppliers.

EC Steel. On November 1, 1985, the
EC agreed to hold steel exports to 5.5%
of the U.S. market through September
30, 1989. The United States has now
negotiated 18 such agreements with
steel-producing countries. These
agreements are designed to correct

\pril 1987

market distortion caused by foreign
practices such as subsidies, dumping,
and quotas.

On August 10, 1986, the EC agreed
to limit semifinished steel exports to the
United States to approximately 600,000
tons annually. This agreement brings
semifinished steel under the discipline of
the U.S. -EC steel arrangement for the
first time.

Steel Surges. On September 4,
1986, Ambassador Yeutter requested
immediate consultations with Canada,
Sweden, and Taiwan to remedy the
problem of steel import surges from
those nations. This followed large
monthly increases from these nations
(which are not covered by the Presi-
dent's steel program) during July. Steel
imports from Sweden and Taiwan have
subsequently declined.

Mexico GATT. On August 24, 1986,
Mexico acceded to the GATT following
the negotiation with the United States of
terms of accession that will guarantee
greater access to the Mexican market
for U.S. exporters.

Hong Kong Textiles. The United
States and Hong Kong reached a com-
prehensive agreement on textile and
apparel imports on June 30, 1986,
limiting growth of Hong Kong textile
and apparel imports to an average of 1%
per year through 1991. This agreement
also extended coverage to virtually all
fibers, including ramie, silk blends, and
linen.

Taiwan Textiles. On July 14, 1986,
the United States and Taiwan reached a
comprehensive agreement on textiles
and apparel similar to the agreement
reached with Hong Kong. Under this
agreement, Taiwan's exports will grow
by about one-half of 1% from 1985
through 1988. In addition, Taiwan
agreed to reduce tariffs on more than
300 textile and apparel items by as much
as 50%, providing additional market
access for U.S. manufacturers.

Korea Textiles. On August 4, 1986,
the United States and Korea reached a
comprehensive agreement on textiles
and apparel that will limit import growth
to 0.8% annually through 1989. In addi-
tion, Korea has agreed to phase out its
import licensing system over 3 years,
providing additional market access for
U.S. manufacturers.

Japan Textiles. Japan agreed to a
comprehensive agreement on textiles
and apparel on November 13, 1986, that
will limit import growth to 0.8%

ECONOMICS

annually through 1989. In addition,
Japan agreed to establish a mechanism
to prevent transshipments of textiles
from third countries through Japan.

Japan Computer Parts. The United
States and Japan agreed on November
22, 1985, to eliminate all tariffs on trade
in computer parts, and Japan agreed to
eliminate tariffs on computer peripherals
and central processing units.

Japan Lawyers. On April 11, 1986,
the United States and Japan announced
an agreement permitting American
lawyers to enter the legal services
market in Japan for the first time. Con-
sultations continue on implementation of
the agreement.

Taiwan Pears. Taiwan agreed to
liberalize restrictions on imports of pears
as of September 15, 1986.

Colombia Wine. Following
representations by Ambassador Yeutter
to the President of Colombia, that nation
removed U.S. wines from its list of pro-
hibited imports.

Bilateral Investment Treaties.

Since March 25, 1986, President Reagan
has sent to the Senate for ratification 10
bilateral investment treaties liberalizing
investment policies between the United
States and developing nations.

Harmonized System. On July 25,
1986, the United States presented the
GATT with a new U.S. tariff schedule
bearing common nomenclature
negotiated in the GATT over a 12-year
period. U.S. exporters will benefit from
the efficiency that results when the new
system is phased in by all countries.

Government Procurement Code.

GATT's Committee on Government Pro-
curement completed the first phase of
renegotiating the Government Procure-
ment Code on November 21, 1986,
strengthening the code to bring the pro-
curement practices of other signatories
more into line with U.S. practices.

Improving the International Economy

President Reagan has sought an unprec-
edented level of coordination of interna-
tional economic policies among the
leading developed countries to provide a
more reasonable relationship between
the dollar and other currencies to assist
U.S. exporters and import-sensitive
industries.

Plaza Agreement. Secretary Baker
and representatives of four other indus-
trialized nations agreed on September
22, 1985, to embark on a major effort to

coordinate economic policies. The result
has been a major realignment of cur-
rency exchange rates, which will begin
to alter our trade imbalance soon and
which has already made U.S. products
and services far more competitive.

Tokyo Summit. The President
achieved agreement at the Tokyo
economic summit on May 6, 1986, on a

Imports from the EEC

PROCLAMATION 5601,
JAN. 21, 1987 1

1. On March 31, 1986, I announced my deci-
sion, pursuant to section 301(a) of the Trade
Act of 1974, as amended (the Act) (19 U.S.C.
2411(a)), to take action in response to restric-
tions imposed by the European Economic
Community (EEC) affecting imports of
United States grain and oilseeds into Spain
and Portugal. I determined that these restric-
tions deny benefits to the United States aris-
ing under the General Agreement on Tariffs
and Trade (GATT) (61 Stat. (pts. 5 and 6)),
are unreasonable, and constitute a burden
and restriction on United States commerce
(51 F.R. 18294). Accordingly, in Proclamation
5478 of May 15, 1986 (51 F.R. 1829), pur-
suant to section 301 (a), (b), and (d)(1) of the
Act (19 U.S.C. 2411 (a), (b), and (d)(1)), I
imposed quantitative restrictions on imports
of certain articles from the EEC in response
to the EEC restrictions in Portugal.

2. In Proclamation 5478, I also announced
my decision, in response to the withdrawal of
tariff concessions and the application of the
EEC variable levy on Spanish imports of corn
and sorghum, to suspend temporarily, pur-
suant to section 301 (a), (b), and (d)(1) of the
Act, the tariff concessions made by the
United States under the GATT on articles
described in Annex II to that proclamation. I
made no immediate change in the U.S. duty
rates for these articles in order to afford the
EEC an opportunity to provide, by July 1,
1986. adequate compensation for the imposi-
tion of variable levies on imports of corn and
sorghum into Spain. I further stated that, in
the event such compensation were not pro-
vided by July 1, 1986, I would proclaim
increased duties for these articles as appro-
priate. Having due regard for the interna-
tional obligations of the United States. I
decided that any such increased duties on
these articles would be applied on a most-
favored-nation basis.

3. On July 2, 1986, the United States and
the EEC reached an interim agreement
whereby the EEC agreed to take measures to
avoid harm to U.S. sales of corn and sorghum
to the EEC for the 6-month period ending
December 31. 1986. In return, the United
States agreed to defer action on the imposi-
tion of increased duties on imports of certain
articles into the United States during this
period so as to allow time for negotiation of a
definitive settlement.

package of reforms that will improve th
international monetary system and pro-
vide a more stable international
economic environment.

'The completed transcript of the hearing
will be published by the committee and will h
available from the Superintendent of
Documents, U.S. Government Printing
Office, Washington, D.C. 20402. ■

;

of
lis

4. Despite extensive negotiating efforts
throughout 1986, the EEC has not yet agree
to provide satisfactory compensation. Accore
ingly, I have determined, pursuant to sectior
301 (a), (b), and (d)(1) of the Act, that
increased duties should be imposed on a mos
favored-nation basis on the articles provided
for in the Annex to this proclamation. Pur-
suant to general headnote 4 to the Tariff
Schedules of the United States (19 U.S.C.
1202), the U.S. rates of duty for countries n<
receiving most-favored-nation treatment wil
be modified accordingly.

5. In the event that the EEC provides
adequate compensation for the imposition o:
variable levies on corn and sorghum impon
or if other circumstances so warrant, I am
authorizing the United States Trade
Representative to suspend, modify, or ter-
minate the increased duties imposed by this
proclamation upon publication in the Federa
Register of notice of his determination that
such action is in the interest of the United
States. Such suspension, modification, or tei<
mination shall be on a most-favored-nation
basis.

Now, Therefore. I, Ronald Reaga

President of the United States of America,
acting under the authority vested in me by
the Constitution and the statutes of the
United States, including but not limited to
section 301 (a), (b), and (d)(1) and section 60<
of the Act (19 U.S.C. 2483), do proclaim tha'

1. Subpart B of part 2 of the Appendix t
the Tariff Schedules of the Annex to this
proclamation.

2. The United States Trade Represen-
tative is authorized to suspend, modify, or
terminate the increased duties imposed by
this proclamation upon publication in the
Federal Register of his determination that
such action is in the interest of the United
States.

3. This proclamation shall be effective
with respect to articles entered, or withdraw
from warehouse for consumption, on or ai'tei
January 30, 1987.

IN WITNESS WHEREOF, I have hereuntt
set my hand this 21st day of January, in the
year of our Lord nineteen hundred and
eighty-seven, and of the Independence of the
United States of America the two hundred
and eleventh.

Ronald Reaga

■Text from Weekly Compilation of
Presidential Documents of Jan. 26, 1987.

Department of State Bulleti

ECONOMICS

: inance Ministers

i/leet on Exchange Rates

The finance ministers and central
lank governors of Canada, France, West
tiermany. Japan, the United Kingdom,
nd the United States (represented by
meretary of the Treasury James A.
taker III and chairman of the Board of
Jovernors of the Federal Reserve System
faul A. Volcker) issued the following
\tatement in Paris on February 22, 1987.

. Ministers of finance and central bank
jovernors of six major industrialized

ountries met today in Paris to conduct

lultilateral surveillance of their
iconomies in the framework of the

'okyo economic declaration of May 6,

986, pursuant to which the group of
'even finance ministers was formed. The

rinisters and governors, using a range
jf economic indicators, reviewed current

economic developments and prospects.
i he managing director of the IMF
1 nternational Monetary Fund] par-

cipated in the discussions.

2. The ministers and governors
vere of the view that further progress

ad been made since the Tokyo summit
i their efforts to achieve a sustainable,
oninflationary expansion, and the pros-
ects are for continued growth this year,
though the level of unemployment
jmains unacceptably high in some coun-

i -ies. A high degree of price stability has
een attained, and there have been
ibstantial reductions in interest rates,
xchange rate adjustments have
?curred which will contribute impor-
mtly in the period ahead to the restora-
on of a more sustainable pattern of

I irrent accounts.

3. Progress is being made in reduc-
ig budget deficits in deficit countries,
nd fundamental tax reforms are being
itroduced to improve incentives,
icrease the efficiency of economies, and
nhance the prospects of higher growth,
ther important structural reforms are
Iso being carried forward, including
eregulation of business to increase effi-
■ency and privatization of government
nterprises to strengthen reliance on
rivate entrepreneurs and market

orces.

4. These positive developments not-
withstanding, the ministers and gover-

' ors recognize that the large trade and
Current account imbalances of some
lountries pose serious economic and
olitical risks. They agree that the
'eduction of the large unsustainable
Irade imbalances is a matter of high

priority and that the achievement of
more balanced global growth should play
a central role in bringing about such a
reduction.

5. The ministers and governors reaf-
firmed their concern over continuing
pressures for protectionism. They
agreed that efforts to deal with
economic problems by erecting trade
barriers were self-defeating and pledged
to intensify their efforts to resist protec-
tionism and reaffirmed their strong sup-
port for the next round of trade negotia-
tions. They welcomed the progress made
in the preparatory work for the new
GATT [General Agreement on Tariffs
and Trade] round and the recent positive
conclusions of discussions between the
United States and the European Com-
munity on bilateral trade issues.

6. The ministers and governors
recognized that the major industrial
countries have a special responsibility to
follow policies which foster an open,
growing world economy in order to sup-
port the efforts of developing countries,
especially debtor countries, to restore
steady growth and viable balance-of-
payments positions. They noted that the
progress achieved by many debtor coun-
tries toward these have not solved all the
problems and stressed the importance of
all participants in the strengthened debt
strategy reinforcing their cooperative
efforts.

7. The ministers and governors
agreed to intensify their economic policy
coordination efforts in order to promote
more balanced global growth and to
reduce existing imbalances. Surplus
countries committed themselves to
follow policies designed to strengthen
domestic demand and to reduce their
external surpluses while maintaining
price stability. Deficit countries commit-
ted themselves to follow policies des-
tined to encourage steady, low-inflation
growth while reducing their domestic
imbalances and external deficits. To this
end, each country has agreed to the
following undertakings.

The Government of Canada's policy
is designed to sustain the current
economic expansion through its fifth
year and beyond. In the budget for
1987-88, the government has cut the
fiscal deficit for the third consecutive
year and remains committed to further
progressive reduction. Canada will pro-
pose shortly an extensive reform of its
tax system. It will continue with its

policies of regulatory reform, privatiza-
tion, and liberalization of domestic
markets. It will vigorously pursue trade
liberalization bilaterally with the United
States and multilaterally within the
Uruguay round [of multilateral trade
negotiations]. Monetary policies will con-
tinue to aim at the reduction of inflation
and be consistent with orderly exchange
markets.

The Government of France will
reduce the central government budget
deficit by 1% of GNP [gross national
product] from 1986 to 1988 and in the
same period will implement a tax cut
program of the same order of magnitude
(1% of GNP) with substantial tax rate
cuts for corporations and individuals. It
will pursue in 1987 its privatization pro-
gram (with a projected $6,000-7,000
million sale of assets) and reinforce the
liberalization of the French economy
especially of labor and financial markets.

The Government of the Federal
Republic of Germany will pursue
policies to diminish further the share of
the public expenditures in the economy
and to reduce the tax burden for
individuals and corporations with a com-
prehensive tax reform aimed at reinforc-
ing the incentives for private-sector
activity and investment. In addition, the
government will propose to increase the
size of the tax reductions already
enacted for 1988. The federal govern-
ment will emphasize policies that
enhance market forces in order to foster
structural adjustment and innovation.
Short-term interest rates, although
already at a very low level in interna-
tional comparison, have further dropped
substantially during the last few weeks.
Monetary policy will be directed at
improving the conditions for sustained
economic growth while maintaining price
stability.

The Government of Japan will follow
monetary and fiscal policies which will
help to expand domestic demand and
thereby contribute to reducing the
external surplus. The comprehensive tax
reform, now before the Diet, will give
additional stimulus to the vitality of the
Japanese economy. Every effort will be
made to get the 1987 budget approved
by the Diet so that its early implementa-
tion be ensured. A comprehensive
economic program will be prepared after
the approval of the 1987 budget by the
Diet, so as to stimulate domestic
demand, with the prevailing economic
situation duly taken into account. The
Bank of Japan announced that it will
reduce its discount rate by l k% on
February 23.

kpril 1987

ECONOMICS

The United Kingdom Government
will maintain conditions for continuing
the steady growth of GNP of the past 5
years and will continue to work to
reduce inflation by following a prudent
monetary policy. On external account,
the aim will be broad balance over the
medium term. The share of public
expenditure in the economy will continue
to fall, and the burden of taxation will be
reduced, while public sector borrowing is
maintained at low level. These and other
measures to strengthen the supply per-
formance of the economy, such as the
privatization program, will reinforce
improvement over recent years in the
growth of productivity.

The United States Government will
pursue policies with a view to reducing
the fiscal 1988 deficit to 2.3% of GNP
from its estimated level of 3.9% in fiscal
1987. For this purpose, the growth in
government expenditures will be held to
less than 1% in fiscal 1988 as part of the
continuing program to reduce the share
of government in GNP from its current
level of 23%. The United States will
introduce a wide range of policies to
improve its competitiveness and to
enhance the strength and flexibility of
its economy. Monetary policy will be con-
sistent with economic expansion at a sus-
tainable non-inflationary pace.

8. The ministers and governors
noted that a number of newly indus-
trialized economies were playing an
increasingly important role in world
trade. These economies have achieved
strong growth based significantly on
their access to open, growing export
markets. Recently some have accu-
mulated trade surpluses which have con-
tributed importantly to the present
unsustainable pattern of global
imbalances, thus increasing protectionist
pressures. The ministers and governors
considered that it is important that the
newly industrialized developing
economies should assume greater
responsibility for preserving an open
world trading system by reducing trade
barriers and pursuing policies that allow
their currencies to reflect more fully
underlying economic fundamentals.

9. The ministers and governors also
agreed to additional refinements in the
use of economic indicators for the
multilateral surveillance arrangements
approved in the Tokyo economic declara-
tion. As part of these refinements, they
will:

• Periodically review medium-term
economic objectives and projections
involving domestic and external
variables. The medium-term objectives

and projects are to be mutually consist-
ent and will serve as a basis for assess-
ing national policies and performance
and

• Regularly examine, using perform-
ance indicators, whether current
economic developments and trends are
consistent with the medium-term objec-
tives and projections and consider the
need for remedial action.

Initially, the objectives and projec-
tions will involve the following key
variables: growth, inflation, current
accounts-trade balances, budget
performance, monetary conditions, and
exchange rates.

10. The ministers and governors
agreed that the substantial exchange
rate change since the Plaza agreement
will increasingly contribute to reducing
external imbalances and have now
brought their currencies within ranges
broadly consistent with underlying
economic fundamentals, given the policy
commitments summarized in this state-
ment. Further substantial exchange ratt
shifts among their currencies could
damage growth and adjustment pros-
pects in their countries. In current cir- I
cumstances, therefore, they agreed to
cooperate closely to foster stability to
exchange rates around current levels. I

U.S. International Trade

WHITE HOUSE STATEMENT,
DEC. 30, 1986 1

The President today is taking trade
policy actions on two cases involving the
unfair practices of our trading partners.
The first case involves agricultural trade
with the European Communities (EC).
The President announced today that he
is increasing import duties on U.S
imports of certain European agricultural
products in direct response to the failure
of the European Communities to offer
adequate compensation for lost U.S.
feedgrain exports to Spain. He has
directed U.S. Trade Representative
Clayton Yeutter to prepare a proclama-
tion imposing 200 duties on some $400
million of EC exports by no later than
January 30, 1987.

The President's action follows the
expiration of an interim agreement con-
cluded last July with the EC, intended to
allow time until the end of 1986 to reach
a permanent compensation arrangement
for U.S. exports of feedgrains to Spain.
However, the EC failed to offer accept-
able compensation in the negotiations.

The President expressed regret that
the European negotiators had not shown
sufficient flexibility to reach a satisfac-
tory settlement, despite the additional 6
months the United States had allowed
for the negotiations. He indicated that
the time had come to respond in kind to

the European measures, in accordance
with U.S. rights under international
rules of the General Agreement on
Tariffs and Trade (GATT). Therefore,
U.S. duties on certain agricultural prod
ucts will be set at 200%. The U.S. Trad
Representative has been directed to
monitor the effects of the U.S. action t<
ensure that they match the damage
caused by the EC restrictions.

The President reaffirmed that the
United States would prefer a negotiate'
solution rather than having to resort to
trade restrictive actions to resolve
disputes and hopes that a settlement cs
be reached prior to the imposition of
duties. He further indicated that the
United States is prepared to restore th
pre-existing tariff rates at any time tha
there is agreement with the European
Communities to provide adequate com-
pensation for U.S. feedgrain losses.

The second case involves the pend-
ing Section 301 case against the Goven
ment of Brazil for acts, policies, and
practices involving restrictions on infor
matics trade and investment and denial
of adequate and effective intellectual
property protection. Brazil has recentlj
announced measures to improve the
administration of its informatics law an
narrow the scope of its market reserve
Specifically, Brazil has agreed to
establish an ad hoc group to review
specific U.S. company complaints, has
promulgated some administrative

Department of State Bullei

EUROPE

forms, and has liberalized the importa-
tion of some previously restricted infor-
inatics products, subject to periodic
prevision. As a result of these positive
^undertakings, the President has decided
jto suspend the procedural and admin-
I strative reforms parts of the Section
j?01 case and to monitor Brazil's imple-
mentation of those reforms.

The President has also determined
Ithat while Brazil's investment environ-
Iment is improved, it is not yet fully open
Ito U.S. investment opportunities. In
iddition, the Government of Brazil has
i recently submitted legislation which pro-
' rides some intellectual property protec-
tion for computer software, but the
legislation has numerous features incon-
sistent with international standards.

The President has, therefore,
decided to delay further U.S. remedial
liction for 6 months to monitor Brazilian
Drogress in making necessary improve-
ments in the investment climate and to
secure passage of intellectual property
j egislation consistent with international
1 ;tandards. Thus, action on both the
■ nvestment and intellectual property por-
tions of the Section 301 case will be
postponed until July 1, 1987.

In addition, the President has
nstructed U.S. Trade Representative
Clayton Yeutter to conduct a series of
public hearings on Brazil's informatics
'\ jolicy and to solicit private sector recom-
■nendations as to what further action
lould or should be taken to foster the
>pening of the Brazilian informatics
narket. The scheduled dates of the hear-
ngs will be published in the Federal
Register 30 days prior to event.

Poland

■Text from Weekly Compilation of
^residential Documents of Jan. 5, 1987.

PRESIDENTS STATEMENT,
DEC. 12, 1986 1

Five years ago, on December 13, 1981,
the people of Poland were subjected to
martial law. Once again, as so often in
their proud history, Polish patriots faced
a cruel setback in their quest for human
rights. That day will be remembered as a
dark day in the heroic but tragic history
of Poland. It is a day of painful
memories for the families of Solidarity
members who suffered much these past
5 years— many lost lives, were jailed, or
had to live in hiding, separated from
their wives, husbands, and children. My
heartfelt thoughts remain with them.

America will never be indifferent to
the future of Poland. Special ties of kin-
ship, worship, and love of liberty, and
the contribution of Poles to American
independence and progress, remind us
forever that our peoples share a faith in
freedom, spiritual strength, and human
dignity.

After the imposition of martial law
in 1981, the United States sought ways
to express our solidarity with the Polish
people. We welcome the recent amnesty
of most political prisoners. This impor-
tant step, however, does not solve all
problems facing Poland today. They can
be overcome only with the participation
and support of the Polish people. We
hope, therefore, that the amnesty will be
an important first step toward a mean-
ingful dialogue between the Polish peo-
ple and their government. To encourage
this process, we decided to enter into
dialogue with the Polish Government.
We truly hope that future developments
will allow improvement in the relation-
ship between both governments.

On this anniversary, we commemo-
rate the sacrifices and the great spiritual
strength of the courageous Polish peo-
ple, and we look to a future in which
their heritage can breathe freely for the
good of Poland.

PRESIDENT'S STATEMENT,
FEB. 19, 1987 2

Five years ago I asked all Americans to
light a candle in support of freedom in
Poland. During that Christmas season of
1981 candles were lit in millions of
American homes. We had confidence
that the spirit of freedom would continue
to shine in the darkness that martial law

had brought to that brave country. As
Americans, we were showing solidarity
with Solidarity.

Symbolic gestures were not enough.
Economic and other sanctions were
imposed on Poland in response to the
repression that descended on the Polish
people as a result of martial law. Our
message was that America would not
passively stand by while a grand experi-
ment in freedom was brutally smashed
in Poland. If the Polish Government
wanted a decent relationship with the
United States, we made it clear they
would have to lift martial law, release
the political prisoners, and enter into a
real political dialogue with Polish
society.

Today, more than 5 years later, the
light of freedom continues to shine in
Poland. The commitment and sacrifice of
hundreds of thousands of Polish men and
women have kept the flame alive, even
amid the gloom.

In 1983 martial law was lifted and
thousands of political prisoners have
been freed in a series of amnesties. Since
the final amnesty last September, no one
has been arrested on political charges in
Poland. Yet there is still far to go. The
threat of arrest still hangs over those
who seek their freedom.

The right to genuinely independent
trade unions is still stifled. Independent
political activity continues to be
repressed by various governmental
measures. National reconciliation
remains a dream, a goal for the future,
rather than a reality of today.

I continue to believe, as do the
Polish people, that it is a possible dream.
The church in Poland has greeted the
major amnesty of political prisoners last
September as a significant step by the
Polish Government. In response to that
amnesty, we initiated a step-by-step proc-
ess of expanding our dialogue with the
Government of Poland. In our dealings
with Polish authorities, we have made
one point clear: the continuation of
better relations between our countries,
and their further improvement, will be
possible only if we see maintained the
spirit and principle of the amnesty and a
reliance on dialogue and respect for
human rights. Only through genuine and
meaningful reconciliation can the plight
of the Polish people be alleviated. We
will be watching to see that further steps
are taken toward national reconciliation

April 1987

EUROPE

in Poland and that the progress made is
not reversed.

Significantly, the leaders of Solidar-
ity and of the Catholic church in Poland
agree that this is the right course for us
to take. They have now urged us to lift
our remaining economic sanctions in
order to encourage further movement in
the right direction. In considering this
question, I have drawn on a broad cross-
section of view. We have been in touch
at the highest levels with the Polish
Government, with the church, and with
Solidarity. We have also consulted with
our allies.

After careful review, I have decided
that the economic sanctions imposed in
December 1981 and October 1982 should
be rescinded, and I am accordingly
restoring most-favored-nation tariff
treatment for Poland and lifting the ban
on Poland's eligibility for official U.S.
credits and credit guarantees. We have
always worked closely with our allies on
issues concerning Poland, and they have
sent messages of support for this step
forward.

I am honored by the expression of
concern from distinguished Members of
Congress, leaders of the Polish-
American community in this country,
and Solidarity. Together we underscore
the heartfelt concern of our citizens
about Poland. Let no one doubt our
brothers and sisters who struggle to
build a freer and more humane Poland,
or our resolve to stand by them.

As it was in 1981, freedom is
precious to us. The slogan of the Polish
independence struggle of the last cen-
tury was: "For Your Freedom And
Ours." That is our slogan, too. And it is
more than a slogan; it is a program of
action.

Today is the first step, a big step.
Our relations with Poland can only
develop in ways that encourage genuine
progress toward national reconciliation
in that country. We will be steady. We
will be committed. The flame that burns
in the hearts of the Polish people, a
flame represented by the candles we lit
in 1981, that flame of justice and liberty
will never be extinguished.

'Text from Weekly Compilation of
Presidential Documents of Dec. 15, 1986.

2 Text from Weekly Compilation of
Presidential Documents of Feb. 23. 1987.

30th Report on Cyprus

MESSAGE TO THE CONGRESS,
JAN. 29, 1987'

In accordance with Public Law 95-384, I am
submitting to you a bimonthly report on prog-
ress toward a negotiated settlement of the
Cyprus question.

During this period U.N. Secretary
General Perez de Cuellar continued his mis-
sion of good offices to achieve a negotiated
Cyprus settlement. U.N. Under Secretary
General Goulding visited Cyprus from
November 6 to 12 to follow up on the
Secretary General's discussions with Greek
and Turkish Cypriot leaders in September
and to explore with them how best to move
forward.

According to the Secretary General's
December 2 report to the Security Council on
the U.N. operation in Cyprus (enclosed), Mr.
Goulding discussed with the two Cypriot sides
the Secretary General's approach to his mis-
sion of good offices and his effort to help the
two parties achieve a negotiated settlement.
He told the parties that the Secretary General
was determined to pursue his efforts, preserv-
ing all that had been achieved so far and
building on it for future progress.

The two Cypriot sides reiterated to Mr.
Goulding their positions on the draft
framework agreement submitted by the
Secretary General last March. They also
expressed their support for the Secretary
General's good offices mission.

Mr. Goulding also visited Ankara and
Athens and informed the Turkish and Greek
governments of his discussions in Cyprus.

Mr. M. James Wilkinson, the U.S. Speci;
Cyprus Coordinator, visited Cyprus January
19 to 22 and met with President Kyprianou
and Mr. Denktash. Mr. Wilkinson reiterated
during his discussion our sincere interest in
progress toward a just and lasting Cyprus
settlement and our support for the efforts of
the U.N. Secretary General to reach that
goal. We are continuing our consultations
with the Secretary General and with the par
ties to help them find ways to move forward

Sincerely,

Ronald Reaga

'Identical letters addressed to Jim
Wright, Speaker of the House of Represen-
tatives, and Claiborne Pell, chairman of the
Senate Foreign Relations Committee (text
from Weekly Compilation of Presidential
Documents of Feb. 2. 1987). ■

Vienna CSCE Followup Meeting Resumes

PRESIDENTS STATEMENT,
JAN. 26, 1987'

The followup meeting of the Conference
on Security and Cooperation in Europe
(CSCE) resumes its important work
tomorrow in Vienna. It is charged with
taking stock of developments in the
"Helsinki process" and with charting the
path ahead.

The United States has worked
energetically and in concert with our
NATO allies to support full implementa-
tion of the Helsinki Final Act. All CSCE
states must fulfill their commitments if
we are to realize the promise of a more
secure peace with respect for human
rights and with greater cooperation
among all the peoples of Europe and
North America.

Progress has been achieved in some
areas, but the human rights situation
within the Soviet Union and other
nations of Eastern Europe remains
tragic. The resolution of some prominent
individual cases is welcome, and we hope
it will continue. However, sporadic
gestures must be expanded into uni-
versal practice. Our attention must not
be diverted from the severe abuses of
human rights that persist. During the

last round of the Vienna meeting, the
United States and other allied delega-
tions documented in detail failures by
the Soviet Union and its Warsaw Pact
allies to keep their Helsinki promises,
particularly on human rights.

Looking ahead, the United States
continues to believe that the credibility
of the CSCE process depends on fulfill-
ment of commitments already under-
taken. We seek signs that the East is
prepared to take actions— and not just
offer words— to solve such problems as
the treatment of Helsinki monitors and
other political prisoners, divided familie;
and spouses, persecution of religious
believers, denial of the right of emigra-
tion, and radio jamming. Significant
progress on these issues would establish
the basis for a constructive and balance(
outcome at Vienna. Such an outcome
would not only give renewed impetus to
the Helsinki process but also mark a
welcomed step forward in overall East-
West relations. I have instructed Ambas
sador Warren Zimmerman, chairman of
the U.S. delegation, to work toward
these important goals.

Text from Weekly Compilation of
Presidential Documents of Feb. 2. 1987.

Department of State Bulletir

3ENERAL

Maintaining the Momentum
in U.S. Foreign Policy

iy John C. Whitehead

Address before the Mid-America
lorn mittee on February 25, 1987. Mr.
Vh Hi head is Deputy Secretary of State.

Poday, I'm going to talk about some of
|iur toughest foreign policy problems,
vhich aren't on the front pages of the
Newspapers. That rules out Iranian con-
nections and contra funding— not
■ because they aren't important topics in
Iheir own right but because we shouldn't
Lllow ourselves as a nation to become so
jireoccupied with the details of this prob-
em that we lose sight of even more basic
oreign policy challenges facing us.

I'd like to remind you of the most
Important of these challenges— how we
; eal with our adversaries, how we
j ooperate with our friends, and how we
'trengthen the stability of peace.

My message is simple; right now the
I Jnited States has much going for it in
11 of these areas. In recent years, we
Lave made important progress in halting
estabilizing trends and in laying the
roundwork for a safer and more secure
I /orld.

Our immediate task is to keep this
p and to build upon our progress. But
hat isn't always as easy as it sounds,
ndeed, we may be on the verge of
hrowing away these gains by suc-
umbing to the temptations of a
eo-isolationism.

)pportunities for the U.S.

'hroughout our history, Americans have
ad recurrent difficulty in holding to a
teady course in foreign affairs. As a
eople, we have tended to extremes—
ither rushing into broad, ambitious

i verseas commitments or retreating into

i . defensive isolationism.

These pendulum swings in our

|.pproach to the world do not serve U.S.
nterests. We can no longer afford the
uxury of inconsistently picking and

, hoosing among our involvements
ibroad. We need to demonstrate

reliability in our commitments.

For that reason, this Administration

has sought to move our diplomacy away
rom a pattern of periodic cycles of

involvement and withdrawal. Our goal
has been to affirm and reinforce a basic
steadiness and consistency in the con-
duct of our foreign policy.

That effort is working. We are
beginning to see important results. This
is not a question of dramatic break-
throughs; it is the result of sustained
effort.

Through firmness and realism, we
have been able to embark on a new high-
level dialogue with the Soviet Union—
not just on arms control but on the full
agenda of issues between us. And for the
first time in our history, we now have a
realistic prospect of negotiating substan-
tial reductions in the nuclear arsenals of
both sides.

Similarly, we have sought to rein-
vigorate our dialogue with the nations of
Eastern Europe. The Secretary has
asked me to take a special interest in our
relations with these countries. I recently
visited Romania, Hungary, Yugoslavia,
Poland, Czechoslovakia, and Bulgaria.
Despite the obvious differences between
the internal and foreign policies of these
countries and our own, I'm convinced of
the special importance of broadening our
political exchanges with them on issues
of mutual concern— and, in the process,
making clear U.S. views on such basic
issues as arms control and human rights.

In the developing world, we are
working to support a remarkable
resurgence of democratic govern-
ments—most notably in Latin America,
where the percentage of the population
living under democratic rule has grown
from 30% in 1979 to 90% today. We are
extremely pleased that the Philippines
has recently joined the lengthening list
of democracies. We are actively seeking
to promote negotiated peaceful solutions
to regional conflicts— in the Middle East,
southern Africa, and Central America—
as well as to help countries around the
globe resist the threat of aggression.

On the economic front, there is now
a greater appreciation of the need for
the major industrialized nations to work
together and with the less developed
countries in support of broadly based
economic growth, more open trade and
investment, and greater exchange rate
stability.

We are also seeing an encouraging
trend toward greater confidence in free

market-oriented solutions to the prob-
lems of economic growth. We now find,
almost everywhere in the world,
movements to decentralize, deregulate,
and denationalize. At the economic
summits, for example, all the leading
industrial nations have acknowledged
that structural rigidities imposed by
governments are the main obstacles to
renewed growth. Even in the communist
world, reforms in China and Hungary
demonstrate a growing recognition that
entrepreneurial initiative in a market
environment is the engine of develop-
ment and growth.

All of this represents important
progress, but these are problems that
transcend any single administration. Our
ability to respond effectively to these
and other challenges to our security and
well-being over the next 2 years and
beyond will depend on much more than
the political fortunes of the White House
this week or next.

Rather, they are going to require a
sustained bipartisan commitment to
devote sufficient resources to the
diplomacy supporting our foreign policy
objectives. And it is in this area that I
am especially concerned.

The Foreign Affairs
Resource Crisis

There are, of course, efficiencies and
savings that we can and should pursue in
the conduct of our foreign policy. I can
assure you that we are energetically
doing so. This will continue as a basic
priority of the Department of State.

But the hard question for us, today,
is whether we should succumb to the
temptation of letting politically expe-
dient, immediate budget cuts in the
foreign affairs field drive our larger,
longer term policy interests.

This problem appears most starkly in
the unrelenting assault on our foreign
affairs budget. Last January, President
Reagan submitted to Congress an inter-
national affairs budget for fiscal year
1987 that we had stripped to the bone. It
amounted to less than 2% of the total
Federal budget.

That minimal request was cut by the
Congress by 20%, a reduction with far
more threatening effects than even that

April 1987

GENERAL

substantial percentage implies. After
congressional earmarkings and other
constraints on our spending are taken
into account, the bulk of our foreign
affairs operations is now being cut by a
third and security assistance by about
50%.

Let me be clear about the dangers of
this penny-wise, pound-foolish policy.
The deep cuts in our foreign affairs
resources are now dangerously widening
the gap between our interests and our
capabilities for pursuing them. Here are
just a few examples.

Combating Narcotics Trafficking.

In recent months, we've seen extraor-
dinary concern in this country about the
dangers of illegal drugs. That concern is
legitimate and long overdue. But even
this concern is falling victim to false
economizing. It is not simply a question
of funds to enforce the law, to eradicate
crops, and to educate people to the
dangers of narcotics. There is a second
side to the world drug problem— one that
involves the political and economic
realities of crop-producing countries.
You can't just force peasants— many of
them impoverished— to stop growing
their best cash crop without offering
them some sort of economic alternatives.

Similarly, you can't expect the
governments of these nations— many of
them desperately poor and politically
weakened from within by the
gangsterism endemic in the narcotics
trade— to launch major programs
without the economic resources
necessary to sustain them. Yet, to take
an important example, aid for the
Andean countries— Bolivia, Colombia,
Ecuador, and Peru— will be practically
eliminated by the draconian budget cuts
recently enacted by Congress.

Supporting Democratic Transi-
tions. Over the past few years, we have
seen our influence constructively at
work in the Philippines, in Haiti, and
across the continent of Latin America.
But democratic transitions in these
regions are fragile. They require our
political and economic support. Help
means money, and money is not in this
foreign affairs budget.

We are sometimes told that such
foreign assistance is vulnerable on the
Hill because "it doesn't have a constit-
uency." To my mind, that sort of think-
ing is dead wrong. This assistance helps
these countries develop more healthy
economies and helps us maintain close
relations with them. These are often
countries where we have bases vital to
our defense and to the security of our
allies. That should be important to all
sectors of the American body politic.
With a little support, they can also grow
into major trading partners, which helps
all of us.

Third World Debt. Recently, we
have seen increased attention to the
growing problem of Third World debt.
Right now we have a plan— the Baker
plan— that is a constructive approach to
encouraging growth in the developing
countries so that they can do more to
help themselves, provide a better market
for our products, and get over their
welfare dependency on the West.

Obviously we need money to get the
plan into action. But we're supposed to
cut a third of our funding for the
multilateral banks on which the plan
depends. That's exceptionally
shortsighted— we can all imagine the
costs of a Third World debt collapse.

And I could cite many more
examples.

What Is To Be Done

As you can see, arms sales to Iran aren
our only foreign policy problem. The
really tough foreign policy problems are
longer term in nature. If Americans are
becoming unwilling or uninterested in
devoting adequate resources for our
foreign policy, much of the current
debate over specific Administration
policies may become academic.

The serious mismatch between our
policies and our resources creates
vacuums that others can— and will-
exploit to their own advantage. And it
encourages confusion among friends an
adversaries alike about the scope and
aims of American policy.

The particularly disturbing fact for
me is that we've seen all this before; ye
apparently we have forgotten the lessoi
of the 1930s. But today's pressures for
withdrawal from the world add up to
isolationism with a dangerous differenc
As America's power in the postwar
world has grown at an exponential rate
so, too, have the risks of indifference.

For nearly half a century, the Unite
States has shouldered its responsibilitie
as leader of the free world and the char
pion of those struggling to join us.
Through our efforts, we have made eno
mous gains in advancing our own
interests and our ideals. Our prosperity
our technological dynamism, the vitality
of our alliances are all making us a fore
for progress as never before.

America holds a winning hand— if
only we persevere. We must not permil
our capacity for constructive leader-
ship to atrophy for lack of adequate
funding. ■

Department of State Bullet

lUMAN RIGHTS

986 Human Rights Report Released

Following is a statement by Assist-
h,t Secretary for Human Rights and
' it m unitarian Affairs Richard Schifter
n February 19, 1987.

/hen I appeared here a year ago on the
■ccasion of the release of the human
jghts reports for 1985, many of the
juestions posed focused on the Philip-
lines. The election had just taken place,
he votes were being counted, and Presi-
ent Marcos was still in power. I sug-
gested at that time that we place our
mfidence in the people of the Philip-
jjnes. The events of the last year have
; jmonstrated that the people of the
Ihilippines have, in fact, come through,
here are a great many problems still
lead, but democracy and respect for
iman rights have once again estab-
;hed firm roots in the Philippines.

The year 1986 also brought an end
i dictatorship in Haiti. An elected
Dvernment is not as yet in place there,
at the National Governing Council has
'fectively guaranteed freedom of
cpression and association in Haiti.
iteps are being taken to build
imocratic institutions in a country
hich has not known them before,
ccording to the present timetable, an
ected government is expected to be in
ace by February 1988. That is not to
,y that problems of governmental
ructure are the only problems facing
aiti. There is, above all, the difficulty
>sed by the country's poverty and weak
onomy. A great deal will still have to
! done to place Haitian democracy on a
und footing.

Another country in which significant
iman rights progress was noted in
•86 was Guatemala. In an orderly
ansition from a military regime to the
■st democratically elected civilian
rvernment in 20 years, President
jrezo, a national legislature, and 330
ayors— all chosen in the 1985
lections— took office on January 14,
•86. Although Guatemala, too, is beset
ith problems arising out of economic
fficulties, random acts of violence, and
e aftermath of past human rights
>uses, its new democracy has earned it
•spect and recognition.

Elsewhere in the Western Hem-
phere, we continue to be concerned
>out human rights problems in Chile,
uba, Nicaragua, Paraguay, and
iriname, all of which is spelled out in
e report.

The most troubling development on
the human rights scene in 1986 was, of
course, the sharp deterioration of human
rights conditions in South Africa over
the last half of the year. To the
longstanding problem created by apart-
heid, there was added last year the new
state of emergency imposed on June 12,
1986, which has been steadily tightened
since then. It has been estimated that
20,000 persons were detained under the
state of emergency and that 10,000
remained in detention by the end of the
year. A great many of the detained per-
sons are under the age of 18, some even
under the age of 15.

We continue to be deeply concerned
by South Africa's denial of basic human
rights to a majority of its citizens. We
continue to see dialogue among all South
Africans as the only way to effect
positive change. The experience of the
last year has, we believe, demonstrated
that violence results in counterviolence
and repression, which causes more
violence and more repression— all at a
terrifying human cost. We deeply hope
that South Africans can turn from the
self-destructive course on which they
seem to have embarked and rededicate
themselves to the search for a peaceful
solution.

In Europe we noted with satisfac-
tion the release of Poland's political
prisoners.

Although our comprehensive report
covers the year 1986, we cannot, at this
time, totally ignore developments in the
area of human rights since the beginning
of this year. Let me, therefore, touch
briefly on recent events in the People's
Republic of China and in the Soviet
Union.

The Government of the People's
Republic of China, some years ago, made
certain basic decisions to improve the
efficiency and productivity of its
economy. It came to the clearly correct
decision that a more decentralized and
open system— a system based on
incentives— was needed to improve pro-
duction. Political openness was not
joined into this new economic openness.
It has, however, gradually developed as
an inevitable consequence of the relaxa-
tion of controls. It has also, understand-
ably, whetted the appetite of a good
many, particularly of young people who
have shown a new zest for freedom of
expression. This new zest was clearly in
evidence in the recent demonstrations.

We regret the steps that have been
taken constitute steps back, but we
sincerely hope that in due time the trend
toward greater openness and greater
freedom will be in evidence again.

We have the same hopes for the
Soviet Union. We do not believe that
history has condemned any people to
eternal autocratic rule. The natural
human desire for freedom must inevita-
bly come to the fore, whatever the
governmental creed or cultural inhibi-
tions might be. Having said that, let me
emphasize that it is critically important
that we assess the recent initiatives by
General Secretary Gorbachev correctly.
We should neither underestimate what
has happened nor should we overesti-
mate it. In a speech which I gave in
Chicago a few days ago, I dwelled on
this subject at some length [see p. 38].
The point I sought to make there, to
summarize it briefly, was that the
release of persons from prison prior to
the end of the term for which they had
been sentenced is to be welcomed on
purely humanitarian grounds. It ends
the suffering of the persons directly
affected, their families, and their
friends. Similarly, the policy of glasnost
has expanded the scope for cultural
expression somewhat, provided a
somewhat greater range of information
about events inside the Soviet Union,
and allowed somewhat more breathing
space for a great many average Soviet
citizens. But it is not freedom yet, not by
a long shot.

We note, moreover, that the
prisoners who were released were
pressured to sign admissions of guilt and
promises that they would not engage in
antigovernment activities. Many political
and religious prisoners remain
incarcerated.

Copies of the Report

Country Reports on Human Rights Prac-
tices for 1986 was submitted to the
Senate Foreign Relations Committee
and the House Foreign Affairs Commit-
tee by the Department of State in
February 1987. Copies of this 1,356-page
document may be purchased from the
Superintendent of Documents, U.S.
Government Printing Office,
Washington, D.C. 20402, for $31.00.
When ordering, please use exact title
and Stock No. 052-070-06253-3. ■

pril 1987

HUMAN RIGHTS

Moreover, as the Soviet Union has
not as yet embarked on a program of
economic reform of the kind which is
now in evidence in China, we cannot in
the Soviet case speak as yet of political
changes which will inevitably accompany
a relaxation of economic controls. There
is, to be sure, some talk of a new
approach to economic enterprise, of
another look at the Hungarian model.
But so far it is only talk.

There has been expectation— and
occasionally vague hints have been
dropped— that improvements in emigra-
tion figures are in the offing. Yet, for
the last 15 months, month after month,
the emigration figures remained at
extraordinarily low levels, rarely
exceeding 100. The January 1987 figure,
for example, was 98. We need to add
that a new Soviet law promulgated in
1986 restricts the pool of persons that
might qualify for emigration, in violation
of the Helsinki Final Act, to persons who
have spouses, children, parents, or sib-
lings abroad. But even within this nar-
row group, only a very small number
have so far been allowed to leave. ■

The Reality About Human Rights
in the U.S.S.R.

by Richard Schifter

Address before the National Strategy
Forum in Chicago on February 16, 1987.
Ambassador Schifter is Assistant
Secretary for Human Rights and
Humanitarian Affairs.

Of all the questions that can be posed
about human rights conditions
throughout the world, none has, in
recent days, been asked more often or is
more intriguing than the question:
"What's going on in the Soviet Union?"

There is no doubt that interesting
events relating to the state of human
rights in the U.S.S.R. have been happen-
ing recently. The release and deporta-
tion of Shcharanskiy and Orlov can be
written off as parts of arrangements
under which our side released spies. But
there was no clear quid pro quo from the
West for the return of Andrey Sakharov
to Moscow, the release of the poet Irina
Ratushinskaya, the decision not to
impose a prison term on the Crimean
Tatar leader Mustafa Dzhemilev, and,
most recently, the release of a signifi-
cant number of political prisoners. In
Moscow, plays and films that are critical
of certain aspects of past or present con-
ditions in the Soviet Union are shown to
limited audiences. Rumors abound that
previously published books will now
appear in print. There are serious
students of Soviet affairs who believe
that the events that I have just recited
are harbingers of the far-reaching and
most significant changes that Mikhail
Gorbachev will institute in the Soviet
system. There are others who hold to a
more jaundiced view.

Trying to determine what motivates
the leadership of the Soviet Union in
effecting changes in policy is by no
means an easy task. The decisions are
clearly made at the highest level, in the
Politburo. These meetings are not open
to the general public, nor are transcripts
or summaries of its deliberations ever
made available to the outside world. And
in Soviet society, we don't even have
leaks. Therefore, we can try to fathom
the thinking of the Soviet leaders only
by reading their speeches, statements,
and the reports of foreigners who have
had conversations with them. For the
rest of it, we must fall back on educated
guesses. It is with that caveat clearly
underlined that I would like to offer you

my interpretation of recent develop-
ments in the Soviet Union as they rela \
to respect for human rights.

Democracy and the
Russian Revolution

Let me begin by asking what is it that
makes us, both as a political entity anc
as individual citizens, respect the right
of our fellow men— the right to life, to
liberty, and to personal dignity. It is, il
submit to you, above all, our religious
tradition— principles such as the Ten |
Commandments and the Golden Rule- i
that provide the framework within wh j
most of us act most of the time, both i
our private and, in the case of govern-
ment officials, in our official capacities ,
as well.

To this religious tradition we musi
add the fundamentals of our secular
approach to government, an approach
stemming from the philosophers of the
Enlightenment, so magnificently sum-
marized by Thomas Jefferson in the
initial passage of our Declaration of
Independence. What Jefferson stated
there with the utmost clarity are our
ideas of the inalienable rights of the
individual, of limited government, anc
government only with the consent of 1
governed.

Now let us examine where the So i
Union stands on these propositions. T
ideas of the Enlightenment did, indee
penetrate into that country. The
Empress Catherine II expressed an
interest in them. And, in the 200 year |
since her reign, the ideals of Western
civilization have, by no means, been
unknown in Russia. Admittedly, thou;
the penetration has been shallow.
Beyond that and, most importantly, a
far as the outlook of the Soviet leader
ship is concerned, Lenin, the founder
the Soviet state, totally rejected the i
cepts of the rights of the individual. '.
Russian Social Democratic Party, it
should be recalled, was united in its
espousal of Marxism. But Lenin dividt
it precisely on the issue of the method
of seizing and maintaining power,
repudiating any notion of the rights o:
the individual and of government by c
sent of the governed. The very reason
for the existence of the Bolshevik Par
and, ultimately, the communist intern
tional movement united in the Third
International was its complete rejectu

Department of State Bull!

HUMAN RIGHTS

of the concepts of democracy as they had
developed in Western civilization in the
ake of the Enlightenment.

The fact that Western notions of
■democracy were neither foreign to
Russia nor lacked popular support in
ithat country was borne out by the
results of the first relatively free elec-
tions to a Russian parliament. Both the
(first and second Dumas, elected in 1906
and 1907 respectively, contained over-
whelming majorities pledged to
democracy. It is most significant,
furthermore, that the election in
November 1917 of a Constituent
Assembly, held after the Bolshevik
seizure of power, produced only a 24%
ivote for the Bolsheviks. Once again, the
great majority voted for parties support-
ing the democratic form of government.
|[n fact, the largest vote total in the
November 1917 election was garnered
jy the party whose leader, Aleksandr
Kerensky, had been deposed by Lenin
ust weeks earlier.

By the time the Constituent
Assembly met in January 1918, quite a
lumber of the elected delegates had
)een arrested by the Bolsheviks. Even
io, when the assembly met— in spite of
j.hese arrests and in spite of the fact that
3olshevik-led troops surrounded
-"etrograd's Tauride Palace in which the
neeting took place and were, in fact,
^resent in the meeting hall— the
Bolsheviks lost every key vote. They
,hen withdrew from the session. Eight-
een hours after the meeting had been
opened, the Bolshevik soldiers forced its
idjournment by simply turning off the
ights. As the delegates stumbled in the
lark to the doors and out into the street,
.hey may not have known that the light
lad also been turned out on Russia's
>rief exposure to democracy. They found
>ut a few days later when the Bolsheviks
lissolved the assembly and moved on
vith their program to establish
.hroughout the country a one-party dic-
.atorship. As the words "democracy"
md "democratization" are so often in
ise in the Soviet Union today, let us
iote that just a few days before he
lissolved the Constituent Assembly,
Lenin had delivered a speech in which he
lad pledged himself to fight for "our
:ruly democratic regime" against the
:apitalists of the world.

The Growth of
Soviet Repression

;3o much for Lenin's approach to the
• notion of government by consent of the
governed. But what about the older.

religious tradition of respect for the
integrity of the individual, a tradition
which had reached Russia more than 900
years earlier with the arrival of Chris-
tianity. It was a tradition which many
rulers had honored in the breach, but it
had, nevertheless, from time to time,
served as a brake on Russia's autocrats.
Lenin had swept it all aside, not only by
committing the state he created to
virulent atheism but by insisting that the
leadership of his movement banish all no-
tions of "bourgeois morality" from its
conduct of public affairs. No holds were
to be barred. Every vile trick in the book
could be used, all forms of brutality were
in order, if it advanced the cause.

On the foundation laid by Lenin,
Stalin then built the despotism uniquely
associated with his name. The basic
approach which justified repressive and
amoral government had been well estab-
lished by Lenin, and the mechanisms of
repression had been put in place. But
whereas Lenin was prepared to destroy
and to kill for the cause, Stalin was
prepared to use the existing apparatus
to serve his personal ends, to destroy
and kill out of vindictiveness, paranoia,
and sometimes even on a whim.

Stalin died in March 1953. The reign
of terror continued a few months longer
under the leadership of Stalin's Minister
of State Security, Lavrenti Beria. But
Beria was arrested in July 1953 and exe-
cuted in December. That, indeed, put an
end to Stalinism per se. Yet Stalinoid
tendencies— for that matter tendencies
that date back to the Romanovs, per-
sisted. By that I mean governmental

action which constituted brutality for
brutality's sake, meanness, vindic-
tiveness, and paranoia. In analyzing
developments concerning human rights
in the Soviet Union in the period since
1953, we can identify both Leninist and
Stalinoid tendencies. By the former, I
mean repression for a clearly recognized
purpose of state. By the latter, I mean
random repression designed to instill
fear in the populace without relevance to
a clearly defined objective.

The arrest and execution of Beria in
1953, together with the arrest and
execution of other leaders of Stalin's
secret police, resulted in the transfer of
the secret police apparatus from the
center of the Soviet bureaucracy to its
margin. The secret police was still there
and operating, but its fangs had been
pulled. It was operating under the
authority of the country's political
leadership rather than as a law unto
itself. It was to crack down when it was
in the interest of the state to do so, not
at random, not on the basis of its own
whim, not as a result of an anonymous
denunciation. And what we might call
the rules of engagement were changed.
When dealing with the general public,
the secret police would use brutality
more sparingly, only when clearly
necessary.

Remission and Revival

As we look back, we can identify a
period of remission of the Stalinoid
tendency, which lasted from July 1953 to
February 1977, for 23V2 years. It began

Release of Soviet Political Prisoners

DEPARTMENT STATEMENT,
FEB. 9, 1987'

The United States welcomes the
reported release of as many as 50 Soviet
political prisoners. We have long urged
the Soviet Government to live up to its
obligations under the Helsinki Final Act
and other international agreements on
human rights, and we hope that the
Soviet Government will follow up these
recent moves by releasing all political
prisoners and prisoners of conscience
who unjustly remain in confinement or
exile, without imposing any requirement
that they recant their past activities, or
limit future activities in support of
human rights. As we have consistently

made clear to the Soviet Government,
we attach the greatest importance to
improvements in the field of human
rights, including the right to emigrate.
We hope that recent statements by
Soviet officials that larger numbers of
Soviet Jews are being granted exit per-
mission will be followed by steps to allow
the departure of all those who wish to
exercise their right to leave. The United
States will be observing future develop-
ments closely and continued positive
moves by the Soviet Government in this
area will have a positive impact on the
climate of U.S. -Soviet relations.

'Read to news correspondents by Depart-
ment spokesman Charles Redman. ■

April 1987

HUMAN RIGHTS

with the release of the hundreds of
thousands of Stalin's prisoners. And it
ended with the arrest of Yuriy Orlov, a
well-known physicist, who had taken on
the leadership of a group which had
taken on the task of monitoring Soviet
compliance with the human rights provi-
sions of the Helsinki accords.

The period of 1953-77 was by no
means a period in which Soviet action in
the field of human rights was totally
benign. To be sure, Nikita Khrushchev
released Stalin's prisoners, made his
famous de-Stalinization speech in
February 1956, allowed the publication
of Solzhenitsyn's One Day in the Life of
Ivan Denisovich, and permitted "the
thaw" to develop. But in November
1956, following Lenin's precepts,
Khrushchev brutally suppressed
Hungary's freedom fighters. And it was
Khrushchev who ordered the execution
in 1957 of Imre Nagy, a life-long com-
munist, whom the Hungarian revolt had
propelled into a leadership position. The
man charged with carrying out the
Kremlin's Hungary policy on the spot,
incidentally, was the Soviet Ambassador
in Budapest. He played a clever game of
deception and, later, of ruthless suppres-
sion. He thus earned his spurs to rise to
much higher office. His name was Yuriy
Andropov.

It is interesting, at this time, to look
back at the Khrushchev years. This was
not an era in which the supreme leader
had ordered glasnost [openness]. The
thaw came about because repression
from above had been relaxed and, as the
years went by, particularly after the
de-Stalinization speech, Soviet citizens
became more courageous in speaking
out. The thaw came from the bottom up,
not from the top down. There were a
good many of us who thought at the time
that the thaw had become irreversible.

It appeared that way even when
Khrushchev fell in 1964 and was
replaced by Brezhnev. The democratic
ferment in intellectual circles was
increasingly in evidence and, in time,
ripened into the dissident movement.
The leadership was uncertain about this
new phenomenon. There were clearly
some who thought that no harm could
come to a Soviet state if a few dissent-
ers spoke up, as long as they were
not well organized. Others were,
however, increasingly uncomfortable
with the mere idea that dissenting views
could not also be expressed in writing,
even though such writings would be
published abroad and under pseudonyms.
The government response was, as a
result, hesitant and unclear. The first

indication that the Brezhnev regime
would place limits on any further
liberalization came in 1966, with the trial
of the writers Yuliy Daniel and Andrey
Sinyavsky. Both of them were sentenced
for writings that had been published
abroad. In the years immediately follow-
ing, other activists were picked up and
sentenced to relatively short terms of
imprisonment. Some were also commit-
ted to institutions for the mentally ill.
But these governmental counter-
measures were only sporadic. The dissi-
dent movement— from 1970 on, led by
Andrey Sakharov— was gaining further
momentum. Samizdat or underground
literature was distributed with increas-
ing boldness.

As the dissident movement became
increasingly outspoken, an event
occurred which received little notice at
the time. In 1974, Yuriy Andropov, of
Budapest fame, by then head of the
KGB, was elevated to a seat on the Polit-
buro. His views and those of persons
close to him did not seem to have an
immediate impact on the course of
events. However, beginning in 1976,
criticism of ideological laxness appeared
in Pravda. There were now calls for a
crackdown on the dissident movement.

The crackdown came, as I noted
earlier, in February 1977. It started with
the arrest of Yuriy Orlov. Shcharan-
skiy— arrested, tried, and convicted on a
trumped-up charge of treason— followed,
and then came the various other persons
identified with the dissident movement
as well as those who advocated
unauthorized positions on religion,
minority nationalities, and Jewish
emigration and culture. By January 1980
when Andrey Sakharov was banished to
Gorkiy, the movement he had led had
been totally crushed.

The destruction of the dissident
movement and the end to samizdat did
not cause the secret police to relent.
Wherever and whenever a Soviet citizen
tried to raise his head to publicize
unauthorized views, the heavy hand of
the police state clamped down on him
quickly. More persons were arrested and
stood trial for anti-Soviet agitation and
propaganda, which usually resulted in 7
years of imprisonment plus 5 years in
internal exile, a total of 12 years, a large
chunk out of a person's life. Other
dissidents were committed to mental
institutions.

This, then, was the state of affairs in
the Soviet Union from 1977 on, during
the last years of Brezhnev, during
Andropov's tenure, during Chernenko's
tenure, and during the first 20 months
or so of the tenure of Mikhail Gorbachev.

The New Openness

And now let me get back to the question
to which I referred at the outset:
"What's going on in the Soviet Union?"
Andrey Sakharov has been allowed to
return to Moscow. And in recent weeks,
dozens of emaciated men, with close-
cropped hair and wearing work-camp
clothes, have arrived at Moscow train
stations: political prisoners released
from incarceration without having to
serve their full term. Gorbachev, the
newspapers tell us, has released more
political prisoners than anyone since
1953-54, when Khrushchev freed the
residents of Stalin's gulag. As I have
just shown to you, the reason why Gor-
bachev was able to release a greater
number of prisoners than his
predecessors was that by 1987, a greatei
number of political prisoners had been
collected in the gulag than at any time
since 1954. Nevertheless, we have to ask
ourselves why, after close to 2 years as
General Secretary preceded by a year as
heir apparent, Gorbachev has decided
now on such steps as the release of
significant numbers of political
prisoners, the return of Sakharov, the
policy of glasnost, and greater cultural
freedom.

I recall attending, many years ago, a
talk by Judge Skelly Wright of the U.S.
Court of Appeals for the District of
Columbia Circuit. Judge Wright had
once been a segregationist. He was
asked what changed his mind. He
pointed to his head and said: "One day
something just clicked." Did something
"just click" in Mikhail Gorbachev's head

Perhaps it did, but whatever clicked
has not turned Mikhail Gorbachev into a
fervent adherent of all of the provisions
of the Universal Declaration of Human
Rights. As it has been for close to 70
years, the Soviet Union remains a
repressive police state. There has been
no general amnesty of political
prisoners. Article 70 of the Criminal
Code of the Russian Socialist Federated
Soviet Republic, making anti-Soviet
agitation and propaganda a felony, is
still on the books. So is article 190-1,
which calls for 3-year sentences for per-
sons guilty of defaming the Soviet state.
What has been officially explained is that
all cases of political prisoners were
reviewed individually. Only some of
them were released, after they had
signed statements in which they promised
not to engage any longer in the activities
which caused their conviction in the first
instance.

Department of State Bulletin

HUMAN RIGHTS

Please consider, in this context, my
arlier remarks about the differences
etween Leninism and Stalinism. If it is
ear that the dissident movement has
oeen destroyed, if it is clear that the
long-term prison sentences imposed on
.dissidents have frightened the popula-
tion sufficiently to extinguish practically
ill forms of dissidence, if a prisoner is
prepared to promise not to offend
against the system again, why engage in
he Stalinist practice of retribution? It
learly doesn't serve the cause. On the
:ontrary, given the favorable publicity
vhich the release of some prisoners
vould generate abroad, the cause is bet-
.er served by effecting such releases. It
•ould help burnish the Soviet Union's
mage and, thus, enhance its role in
vorld affairs.

But what about the various other
neasures that are associated with the
lew Gorbachev leadership? What
•xplains the policy of openness, what
xplains the showing to restricted
udiences of hitherto forbidden plays
nd films?

Let me offer a theory as to the
easons for recent developments in the
ioviet Union.

In 1919, after his visit to the Soviet
Inion, American journalist Lincoln
iteffens made this statement which was
uoted for many years thereafter: "I
ave seen the future and it works."
'hree-quarters of a century later, it is
vident to all that Steffens saw a
lirage, that the future promised by the
•oviet state has not arrived, that the
'Oviet economic model is a failure. The
ict that it is a failure, that the Soviet
conomy is not only not gaining on the
Vest but is falling further and further
ehind, is evident even to the Soviet
;adership. What that leadership seems
d believe, however, is that this failure of
erformance is not due to deficiencies in
le model prescribed by Marxist-
ieninist theory but is the result of
uman frailty, of the inadequacies of
*eonid Brezhnev and the people who
rere placed in office during his period of
jadership. Brezhnev and the
irezhnevites are also faulted for their
ailure to inspire the Soviet people, to
lotivate them to work harder, to be
lore efficient and productive.

Starting with this assessment of the
resent difficulties, Gorbachev has
ledged himself to turn matters around,
o get the Soviet Union moving again,
ilere are some of the steps which he has
i ecided to take.

• Throughout the entire Soviet
system, officeholders who are corrupt,
drunkards, inefficient, or inept, must be
removed and replaced. At the highest
level of government, the identification of
the people who need to be removed can
be made by Gorbachev and his associates
personally. But how can one flush out
the persons at the lower levels of the
hierarchy, particularly those far
removed from Moscow? For that one has
to resort to glasnost. No longer will the
Soviet officialdom be sacrosanct,
shielded from any popular criticism, able
to order the arrest or the commitment to
a mental institution of any citizen who
tries to blow the whistle on a bureaucrat.
From now on, on orders from the
General Secretary, Soviet citizens are to
speak up to denounce the evildoers so
that they can be clearly identified and
replaced. Glasnost is to be employed to
upgrade the quality of the Soviet
bureaucracy.

• Though the Marxist-Leninist
model must not be challenged, it is
recognized that fallible men have, from
time to time, instituted policies and prac-
tices which served the country ill. These,
too, have to be identified. Glasnost
covers them as well.

• Local officials have often exer-
cised their power arbitrarily, thereby
unnecessarily antagonizing Soviet
citizens. The exercise of administrative
discretion, therefore, must be reduced.
There must be clear guidelines from the
highest level of government which spell
out the policies to be followed through-
out the country. The rule of law must be
understood and recognized. It may be
repressive law, but if it is, it must come
from the top, from people who have the
knowledge to decide what is in the
system's interest.

• The country's future in an age
characterized by technological advance
lies with the group which the Soviet
state identifies as the "intelligentsia."
That group, Gorbachev recognized, in
recent times had been affected by a
serious malaise, despondent about the
present and the future. Something had
to be done to inspire that group, get it
excited about life, and, consequently,
make it more productive. Applying good
principles of industrial psychology, Gor-
bachev, perhaps on his wife's advice,
appears to have focused on the area of
culture as one that could, indeed, pro-
vide stimulation. We thus have news
that select audiences in Moscow and
Leningrad may see plays and films that

offer negative comment on current prob-
lems in the Soviet Union. Books that for
years have not been allowed to be
published will soon appear, such as those
of Nabokov and, perhaps, even Paster-
nak. All of this may be enough to turn
on a group which for quite some time
has lived on a cultural diet of "socialist
realism." But it is a far cry from cultural
freedom.

All that I have described takes place
in a one-party state, led by a self-
perpetuating elite, an elite fully sup-
ported by a large, all-pervasive police
force, which knows where the line is
drawn between the permissible and the
impermissible and makes sure— if
necessary, with brute force— to see that
everyone knows where that line is. A
few days ago, the brutal treatment of
persons engaged in a peaceful
demonstration in Moscow at the hands
of plainclothesmen reminded us all just
where the line was drawn.

Conclusion

To sum up: changes have taken place in
recent months in the Soviet Union,
changes significant and meaningful to
every single person released from
prison, to his family, and to his friends.
They are meaningful to Andrey
Sakharov and Yelena Bonner, to their
family and their many friends. They are
meaningful also to those Moscow scien-
tists, writers, and artists who can see
plays that they have not been able to see
before. And they are meaningful to the
average citizen of, let us say, Tashkent,
who can denounce some local official
whose arbitrary use of power he has
resented for so long.

But it isn't freedom. It is not
adherence to the provisions of the
Helsinki Final Act, which Leonid
Brezhnev signed on August 1, 1975. Not
by a long shot. Are we, nevertheless,
getting there? Can we count on further
movement toward an open society? I
would say that we surely will not get
there if we break out in hosannas about
the events in the Soviet Union of recent
months. We should note them, we should
welcome them as modest steps forward,
but we need to point out that compliance
with the international agreements
signed by the Soviet Union concerning
respect for human rights requires much,
much more. Only then will there be at
least a chance of continuing, and far
more significant, progress. ■

\pril 1987

HUMAN RIGHTS

Human Rights, the Soviet Union,
and the Helsinki Process

by Richard Schifter

Address before the "club pro wien"
in Vienna on January 28, 1987. Ambas-
sador Schifter is Assistant Secretary for
Human Rights and Humanitarian
Affairs.

On July 4, 1776, in Philadelphia, Penn-
sylvania, 56 representatives of Britain's
United Colonies of North America
adopted a Declaration of Independence.
The Declaration had started as a draft
prepared by Thomas Jefferson, a leading
member of those we call our "Founding
Fathers," deeply committed not only to
the cause of American independence but
also imbued with the thinking of the
Enlightenment. Reflecting the ideals of
that new age, whose appeal was increas-
ingly falling on fertile ground in Europe,
as it was in North America, Thomas Jef-
ferson penned these immortal words:

We hold these Truths to be self-evident,
that all men are created equal, that they are
endowed by their Creator with certain
unalienable Rights, that among these are
Life, Liberty, and the Pursuit of Happiness—
That to secure these Rights, Governments are
instituted among Men, deriving their just
Powers from the Consent of the
Governed. . . .

As the 56 men in Philadelphia took
the decisive step to found a new nation,
the city in which we meet today wit-
nessed the 36th year of the reign of the
Empress Maria Theresa. My research
has not revealed whether Maria Theresa
paid a great deal of attention to the
activities of those revolutionaries in the
relative wilderness of North America.
Her concerns focused on matters far
closer to home, namely the political
outlook of her own son, a man of about
the same age as Jefferson and clearly
inspired by the same thinkers who had
inspired Jefferson. To her son and
co-regent, whom we know as the
Emperor Joseph II, she addressed the
following warning:

Among your fundamental principles the
most important are: (1) the free exercise of
religion, which no Catholic prince can permit
without heavy responsibility; (2) the destruc-
tion of the nobility; and (3) the so frequently
repeated liberty in everything. . . . Toleration,
indifferentism, are precisely the means to
undermine everything .... I only wish that
when I die I can join my ancestors with the

consolation that my son will be as great, as
religious, as his forefathers, and that he will
give up his false arguments, the evil books,
and the contact with those who have seduced
his spirit at the expense of everything that is
precious and sacred, only to establish an
imaginary freedom which could . . . only lead
to universal destruction.

Maria Theresa's efforts to redirect
her son's thinking failed. In his years as
sole ruler, he did, indeed, attempt to
instill the ideals of the Enlightenment in
the governmental institutions of his
empire. But he failed and died a deeply
disappointed man.

Not only at the time of the death of
Joseph II but even as recently as 50
years ago, a great many observers of
public affairs would have said that the
ideals of the Enlightenment might be
appropriate and suitable in other parts
of the world but surely not here. As a
matter of fact, in the 1930s, as the
world increasingly looked with either
fear or admiration to Nazi Germany to
set the tone in international affairs,
there were many who viewed the totali-
tarian systems then in vogue as the
wave of the future.

The Nazi wave ebbed in just a
matter of years, albeit at enormous
human cost. And this country, once Nazi
rule had ended, for more than a genera-
tion has enjoyed a government chosen by
the people and respectful of their human
rights. After all of the triumphs and
defeats which the principles of freedom
have experienced in this land since the
founding of Austria's Aufklaerungs-
partei in the year 1767, a system of
government which cherishes the rights
of the individual is now firmly anchored
here. The governmental system which
Austria adopted in the post- World
War II period has, indeed, provided the
greatest good for the greatest number
for a period unprecedentedly long in this
country's history.

Systems of Government
and Human Rights

I have made this brief excursion into the
past to underline the simple proposition
that the ideals of the Enlightenment con-
tinue to have universal applicability. I
am making this point because there are
some who genuinely believe in
democracy and human rights, who will
contend that political principles and

structures appropriate for the people of
Western, Northern, and Southern
Europe, and for what we might now call
West-Central Europe, are somehow
inappropriate for Eastern and
East-Central Europe. Advocates of this
view might, if pressed, concede that
most of the countries of Eastern and
East-Central Europe, if left to their owr
devices, could eventually adapt to
democracy and, thus, naturally adhere to
human rights. But they will argue that
the country which dominates that
region— the Soviet Union— still does not
provide a fertile soil for the ideals which
developed on this continent a quarter of
a millennium ago. I submit that this viev
of Russian cultural inferiority is unfair
and unjust.

Admittedly, cultural differences and
separate historical influences do play a
role in the development of varying form
of government. Admittedly, there is a
longer history of repressive autocracy ir
Russia than there has been in other
parts of Europe. And yet, who is
prepared to say that history condemns a
particular people to perpetual repres-
sion? What might someone speaking in
the year 1788 have said about France's
governmental tradition? Who would, as
recently as 15 years ago, have predicted
the vibrant Spanish democracy that we
see existing today? And who would, on
March 13, 1938, have predicted Austria
democratic rebirth only little more than
7 years later?

And let me add at this point that foi
me it has been a particular pleasure to
work closely with representatives of
Austria in international human rights
meetings, both under UN auspices and
in the CSCE [Conference on Security
and Cooperation in Europe] process.
Everyone concerned with the human
rights issue deeply admires the magnifi-
cent contributions made over the years
by [UN Special Rapporteur for Religiou;
Intolerance] Professor Felix Ermacora.
And let me say that I can also sing the
highest praise of Ambassador Rudolf
Torovsky of your Foreign Ministry, the
head of your delegation to the Vienna
CSCE conference.

Let me acknowledge at the outset
that Jefferson's ringing words of 1776
did not usher in a system of government
which fully lived up to all the principles
set forth in the Declaration of Independ-
ence. Our Founding Fathers were well
aware that when the Declaration spoke
of all men being created equal, some of
its signers did not construe the term to
include slaves. The emancipation of the
slaves came 87 years later, in the midst

Department of State Bulletii

HUMAN RIGHTS

mi a bloody civil war. It came, inciden-
tally, 2 years after the proclaimed end of
serfdom in the Russian Empire.

And let me add that while I sat in a
segregated classroom in Vienna in the
spring of 1938, hundreds of thousands of
)lack students in the southern states of
;he United States were attending
similarly segregated schools. As a
-natter of fact, 25 years after I person-
ally experienced that indignity, I had the
Opportunity, as a member of the
Maryland State Board of Education, to
lelp end school segregation in Maryland.

What I thus am suggesting is that no
lountry has truly achieved perfection in
:he quest for human rights, nor can we
dentify a country which is condemned
never to get started on the road to that
roal. Those who write off the Soviet
Jnion today as lacking in democratic
error forget that in the 19th century,
Russia not only produced supporters of
■.he autocracy at one end of the political
;pectrum and nihilists, anarchists, and
■errorists at the other end, but also
lemocrats genuinely committed to the
irinciples that had been spelled out in
he 1789 Declaration of the Rights of
Man and of the Citizen. They forget the
■vents that led to the revolt of 1905 and
he democratic ferment that stirred
lussia from then onward, the fact that
•he relatively free elections to the first
)uma and the second Duma produced
iverwhelming majorities committed to
lemocracy. Finally, they forget that in
he only free election which the
Solsheviks allowed, to the Constituent
Assembly in November 1917, even overt
Bolshevik pressure failed to win more
han 24% of the vote for the Bolshevik
'arty. An overwhelming majority of the
>allots cast went to those who supported
i democratic system of government.

More recently, after the Stalinist
lightmare, we saw signs of a resurgence
if the spirit of freedom in the Soviet
Jnion during Khrushchev's "thaw" and
he rise of the dissident movement dur-
ng the Brezhnev era. Certainly, as
■ecently as 20 years ago one could have
ooked east and north from Vienna with
it least hope that a new day was dawn-
ng. As a matter of fact, in the spring of
L968 it seemed as if, at least in nearby
Czechoslovakia, it was possible for a
_,eninist system to evolve gradually into
)ne in which freedom of expression,
'reedom of religion, and all the other
•jasic rights of the individual would,
ndeed, be respected.

That was not to be. Czechoslovakia's
■noment in the sun came to an abrupt,
externally imposed halt, as had

Hungary's 12 years earlier and as
Poland's would be 13 years later. And in
the Soviet Union itself, where the
government and the dissident movement
had engaged in a cat-and-mouse game
for some years, the heavy hand of severe
oppression came down in 1977 and
extinguished the dissident movement.
The modern Okhrana [secret police] of
the Soviets once again proved itself so
greatly superior in efficiency to its
czarist predecessor.

Changes Under Gorbachev

Now we are observing with deep interest
developments in the Soviet Union under
the leadership of Mikhail Sergeyevich
Gorbachev. As so often before, we are
hoping for the best, we are hoping that
the Soviet Union will, at long last, take
steps that will give its long-suffering
people a chance to attain the same level
of recognition of human dignity that is
enjoyed by their fellow human beings in
so many other parts of the world.

What is important, though, is that
we do not permit our hopes to influence
our good judgment. Mikhail Gorbachev
has now been in power for close to 2
years and may have been the principal
leadership figure for even longer.
Enough time has passed, therefore, for
us to shift from mere speculation as to
what he might do in the future to an
analysis of what he has already done— or
not done.

There is no doubt that a steady
replacement of the officialdom of the
Brezhnev era by a new group of younger
and ostensibly more efficient people has
brought in its wake significant changes
in the day-to-day workings of the Soviet
state. For the average citizen this has
had important results.

For example, a Soviet citizen who
observes a drunken or corrupt official,
inept management, inefficient operation
of a government office, or any similar
deficiency in governmental operations is
now encouraged to speak up without
fear and denounce the wrongdoers.
There is also a new insistence on clearer
instructions to the bureaucracy, less ease
for bureaucrats to operate arbitrarily, a
greater emphasis on promptness in
responding to the public. Accidents or
administrative problems will be admitted
more freely and openly rather than
being swept under the rug. Writers may
criticize some governmental failings. If
we add it all up, it means that a major
effort has been undertaken to make the
state function more smoothly and to

enlist the average citizen in efforts to
improve the efficiency of state opera-
tions.

There is also, under Gorbachev,
greater freedom in the arts than there
had been immediately prior to his acces-
sion to the highest level of leadership.
The works of some writers who were
proscribed in the past have begun to
appear in print, and a film reviewing the
Stalinist past critically is now being
shown in a few closed performances in
Moscow. Whether these innovations are
truly significant, how far they will
ultimately reach, and how long they may
last under what remains one-party state
control of culture is simply not clear
today, at least not to outsiders.

For the rest, we have been bom-
barded with imagery. A Department of
Humanitarian Affairs has now been
created in the Soviet Ministry of Foreign
Affairs. Upon closer examination, it
becomes clear that this department does
not have responsibility for dealing in a
substantive manner with genuine human
rights concerns about the Soviet Union
but, rather, to coordinate the Soviet
counterattack against foreign criticism
of its human rights behavior.

Also, whereas in the past the policy
of Soviet officials has been to refuse to
listen to expressions of concern about
human rights cases and to refuse to
accept lists of names of persons present-
ing human rights problems or petitions
concerning them, there is now a will-
ingness to hear interlocutors out on the
subject of human rights and to accept
lists and petitions. But there is no
evidence that this change in approach
has any substantive significance. On the
contrary, our experience to date would
suggest that the new approach may be
only cosmetic, a recognition that one can
make public relations points by being
polite, without giving up anything of
substantive concern.

Even occasional humanitarian
gestures are milked for maximum public
relations benefit. All of us welcome the
resolution of divided family and
separated spouses cases. But let us keep
in mind that these cases should never
have arisen in the first instance.
Moreover, they should be resolved not
piecemeal over a stretch of time but
systematically and promptly. In fact, if
Mikhail Gorbachev were truly a
reformer, I submit that the least he
could have done would have been to
resolve these divided-spouses cases over-
night, by the stroke of a pen. Instead,
we get an announcement of the future
resolution of, let us say, 60 cases, and
then the months pass as the cases are

April 1987

HUMAN RIGHTS

slowly, a few of them every month,
actually resolved by the issuance of
visas.

In recent weeks, we have also heard
hints that hundreds of political prisoners
will be set free in the near future. We
would welcome this result. But that does
not change the fact that these people
have done nothing which, in keeping
with international law, should have led
to a prison term. They were, nevertheless,
convicted under paragraphs 70 and 190
of the criminal code of the Russian
Soviet Republic for anti-Soviet propa-
ganda or for defamation of the Soviet
system. As I said, if these prisoners are
freed, we shall welcome it. We must,
however, continue to emphasize that
paragraphs 70 and 190 are in conflict
with international law and should be
stricken from the criminal codes of the
Soviet republics.

No, to date we have not seen any
evidence of real human rights reform,
only a heightened media consciousness.
Shcharanskiy and Orlov have been
released, but only in exchange for spies.
Sakharov was allowed to return to
Moscow, an important and welcome
gesture, but one following within days
the death of Anatoliy Marchenko in
prison. Irina Ratushinskaya was allowed
to leave prison early, after her health
had been severely impaired through the
brutalities she suffered in prison, most
of them after Gorbachev's accession to
power. A few prominent refuseniks
leave the Soviet Union, but emigration
numbers continue at the low level of the
recent past.

And abuse of psychiatry continues.
Dr. Koryagin 1 , the courageous psychia-
trist who revealed to the world the truth
about the barbaric Soviet practice of
committing sane persons to institutions
for the mentally ill, is still serving
sentences totaling 9 years for this
revelation. Repression of independent
religious groups is still the order of the
day. During the past year, an additional
90 persons were sent to prison for viola-
tion of the Soviet Union's laws on the
practice of religion. There is no indi-
cation of a clear commitment to make
significant changes with regard to
respect for human rights, even changes
that might do no more than return the
country to the greater openness of the
Khrushchev era.

It is my personal opinion that the
fundamental continuing problem of the
Soviet Union is the centrality of the posi-
tion of its secret police. That, I believe,
is the great difference between Gor-
bachev's openness and Khrushchev's

thaw. Following the arrest and subse-
quent execution of Lavrenti Beria in
1953, the secret police had been moved to
the margin of the Soviet Government
apparatus. In the 1970s, with the rise of
Yuriy Andropov, the KGB moved back
into the center of power. It is there now.
And the fact that Big Brother is always
watching makes it, indeed, possible for
the leadership to relax the reins just a
little, in the full knowledge that they can
always be pulled tight again. It is this set
of circumstances that caused the former
executive editor of The New York Times,
A. M. Rosenthal, to write recently:

Mr. Gorbachev is certainly a smoother
chap than most of his predecessors but he has
not touched the police nature of the Soviet
state and has not even hinted he will. How
could he? He is part of it and rules through it.
But everytime he says he will let a suppressed
book be published or a private citizen own a
pushcart or releases one of his ample supply
of prisoners the West goes into a mad fan-
dango of appreciation. There are, blessedly,
Shcharanskys and some journalists who cry
"wait, wait" to the world but they are out-
numbered by eager folk who clap hands and
sing praise. Myself, I will wait until Mr. Gor-
bachev arrests and tries the men who sent
Mr. Shcharansky to jail and Dr. Sakharov
into exile; time enough then to clap and sing.

Role of the Democracies

Indeed, let us examine what it is that we
can do to bring us nearer to the day
when we can clap and sing. And when I
use the word "we," I am referring to the
governments of the democratic world.

The Soviet Union tells us that its
treatment of its own citizens is none of
our business, that they are willing to
hear us out under the new policy but
that that does not change the fact that in
their eyes we are grossly interfering in
their domestic affairs.

There is a word in a language still
spoken in the Soviet Union which aptly
describes the nature of this response. It
is chutzpah. In the Soviet Union, as we
know, the Communist Party and the
state are one. We need not go further
than to remember that the person whom
all of us accept as the leader of the
Soviet Union is, in fact, none other than
the General Secretary of the Central
Committee of the Communist Party of
the Soviet Union (CPSU). And this is the
party which, upon establishing itself as
the Government of Russia 69 years ago,
did not miss a beat in pursuing its
efforts at worldwide revolution, the
grossest form of interference in the
domestic affairs of other states.

Putting that aspect of the world's
experience with the Soviet Union and
the world communist movement aside,
let us move on to consider the relevance
to the human-rights issue of the interna-
tional agreements signed by the Soviet
Union. As my good friend Max
Kampelman once observed, there was a
difference between U.S. work on anti-
ballistic missile systems before the 1972
ABM [Anti-Ballistic Missile] Treaty and
thereafter. Work on such a system
would take place totally on U.S. ter-
ritory. It was not subject to internationa
constraints before the ABM Treaty was
signed. But it was, indeed, subject to
such constraints after that event.

By the same token, prior to 1975, th
United States could say with regard to
certain Soviet repressive measures that
they were contrary to the provisions of
the Universal Declaration of Human
Rights, but the Soviet Union could
respond that it had not voted for this
nonbinding resolution of the UN Genera
Assembly. However, by signing the
Helsinki Final Act, the Soviet Union als>
agreed to abide by the provisions of the
Universal Declaration of Human Rights.
From August 1, 1975, onward, therefore
Soviet repressive measures can be and
should be condemned as acts contrary t(
the understandings incorporated in a
document duly signed in behalf of the
Soviet Union by its de facto head of
government, the then-General Secretary
of the Central Committee of the Com-
munist Party of the Soviet Union.

Role of the CSCE

And that brings me to a discussion of th
followup conference under the Helsinki
accords, which is now meeting here in
Vienna and whose second session starte*
yesterday.

This is the third such major con-
ference since the Final Act of Helsinki
was signed in 1975. In the interim, then
have also been a number of minicon-
ferences under the Helsinki accords,
limited in duration and devoted to
specific topics.

The Helsinki accords, as we know,
encompass a number of topics. The prin-
cipal ones that have evolved in the last
1 1 years have been security arrange-
ments and human rights. As this presen-
tation focuses on human rights, I shall
limit my discussion of the Helsinki Final
Act to its human rights dimension.

I once posed the question to a rather
high-ranking Soviet official as to what
the Soviet Union really had in mind

Department of State Bulleti

HUMAN RIGHTS

vhen it agreed to the human rights pro-
■isions of the Helsinki Final Act. I
eceived a rather vague answer to the
■ffect that the Soviet Union is a country
vhich is in a state of evolution toward
lemocracy. This would, of course, be a
lerfectly reasonable answer if it were
lot for the fact that human rights condi-
ions in the Soviet Union at the time
hat the statement was made to me in
. 985 were so much worse than they had
een 10 years earlier. It is more likely
hat the correct answer to the question
hat I posed is that the Soviet leaders,
/ho do not worry a great deal about the
bourgeois formalism" of keeping one's
romises, decided that there were
nough benefits for them in the Helsinki
'inal Act to justify their signing the
ocument even though it contained pro-
isions on human rights by which they
ad no intention to abide. What they
bviously did not anticipate is that the
^est would, in due course, try to hold
aem to their commitments and pursue
lem on compliance failures, meeting
fter meeting.

Today, it may appear strange that
le Soviet Union did not anticipate that
ther signatories of the Helsinki Final
.ct would consistently raise the issue at
jview conferences. But in 1975 it was
ot at all clear that that would happen.
t the time the Helsinki accords were
gned, it was not considered proper in
olite diplomatic company— that is, at
iternational gatherings of the repre-
mtatives of governments— to speak of
uman rights violations of other
wereign states. There were, to be sure,
few isolated exceptions. It had, indeed,
ecome acceptable at the United Nations
) speak critically of the mistreatment of
lacks in South Africa. More recently,
-iticism had been voiced at the United
[ations against the human rights viola-
ons for which the Chilean military
overnment had been responsible. Occa-
onally, some adverse comment would
Iso be offered about human rights viola-
ons by other governments. However,
y and large, as of 1975, only relatively
'eak, isolated, and friendless countries
'ould have their human rights violations
illy exposed and discussed in detail at
iternational meetings. We can assume,
lerefore, that Soviet decisionmakers
'ho agreed to the Helsinki accords did
ot believe that signing the document
rithout serious intention to abide by it
arried any potential challenge to its
ractices, either of commission or omis-
ion.

That there might be a down side,
hat the Soviet Union's failure to abide

by the provisions of the Helsinki Final
Act might be subject to criticism at an
international diplomatic gathering was
not even clear in 1977, when the first
Helsinki followup conference met in
Belgrade. That meeting, it should be
noted, was called to order within months
following the first sharp Soviet
crackdown on the Soviet Union's
courageous Helsinki monitors. The
prevailing sentiment among represent-
atives of the democratic world in
Belgrade was not to name names, not to
be too pointed in one's criticism. It is my
understanding that this note of caution
was also sounded by quite a number of
persons within the U.S. Government. It
is to the great credit of the head of the
U.S. delegation to the Belgrade con-
ference, Justice Arthur Goldberg, that
the final U.S. position was that names
would be named; that the fact that, less
than 2 years after the Helsinki Final Act
had been signed, its human rights provi-
sions were being grossly violated in the
Soviet Union had to be spelled out.

Justice Goldberg raised eyebrows at
Belgrade, but as it turned out, he was
the man who broke the ice. By the time
the second followup meeting took place
in Madrid, it was well understood that
human rights violations in the countries
which had signed the Helsinki accords
would be fully discussed. The same was
true of the CSCE miniconferences which
took place after Madrid. And it is, of
course, also true of the third followup
conference which is now taking place in
this city.

To understand fully the setting in
which the human rights debate at the
CSCE conference is taking place, let us
reflect on the most relevant texts. One
of the basic human rights commitments
in the Helsinki Final Act, contained in
Principle VII, reads as follows:

In the field of human rights and funda-
mental freedoms, the participating States will
act in conformity with the purposes and prin-
ciples of the Charter of the United Nations
and with the Universal Declaration of Human
Rights.

Czechoslovak Human Rights Initiative

PRESIDENTS STATEMENT,
DEC. 31, 1986'

January marks the 10th anniversary of
the founding of the Czechoslovak human
rights initiative, Charter '77. The
declaration of Charter '77 enumerated
ways in which the government denied
the people of Czechoslovakia the basic
rights provided for in the country's legal
code, in the Helsinki accords, and in
international covenants. The charter,
which also spelled out the responsibility
of citizens in ensuring compliance with
those principles, first appeared on
January 1, 1977, carrying the signatures
of 241 persons from a wide cross-section
of Czechoslovak society. On January 6
representatives of Charter '77 first tried
to present the text of that document to
the Czechoslovak authorities. Though,
then and now, government officials have
tried to characterize the signers of the
charter as criminals, they could not
diminish the moral authority of those
who had the courage to hold them
accountable to basic laws and principles.

Charter '77, Eastern Europe's
longest lasting human rights initiative,
served for 10 years as a champion of
civil and human rights, a repository for
national values, and a cultural and

publishing network at home and abroad
that has kept unified and alive a rich
national literature. Pluralistic in its
membership and interests, the charter
has avoided the role of a political opposi-
tion. Despite imprisonment and intimida-
tion, chartists have persisted in issuing
numerous documents on many aspects of
Czechoslovak life and on international
affairs, witnessing steadfastly for the
humanistic and democratic convictions of
its reformist, Christian, and cultural
memberships. The charter also gave rise
to the Committee for the Defense of
Unjustly Persecuted (VONS), which has
documented and focused international
attention on a vast number of injustices.

The more than 1,000 signatures of
the charter to date have had influence
far beyond their numbers. They
articulate the ideals of an uncountable
number of their fellow Czechoslovaks
and, indeed, of all who want to see
human rights respected. By their
activities, Charter '77 signers have in
countless small and large ways pushed
back the gloom over Czechoslovakia's
barren political landscape.

'Text from Weekly Compilation of
Presidential Documents of Jan. 5, 1987.

i\pril 1987

HUMAN RIGHTS

Now let us examine some of the key
provisions of this declaration, which
were thus incorporated into the Helsinki
Final Act.

Article 18 provides:

Everyone has the right to freedom of
thought, conscience and religion; this right
includes freedom to change his religion or
belief, and freedom, either alone or in com-
munity with others and in public or private, to
manifest his religion or belief in teaching,
practice, worship and observance.

Article 19 provides:

Everyone has the right to freedom of
opinion and expression; this right includes
freedom to hold opinions without interference
and to seek, receive and impart information
and ideas through any media and regardless
of frontiers.

Article 20 provides:

1. Everyone has the right to freedom of
peaceful assembly and association.

2. No one may be compelled to belong to
an association.

Article 21 provides:

1. Everyone has the right to take part in
the government of his country, directly or
through freely chosen representatives.

2. Everyone has the right of equal access
to public service in his country.

3. The will of the people shall be the basis
of the authority of government; this will shall
be expressed in periodic and genuine elections
which shall be by universal and equal suffrage
and shall be held by secret vote or by
equivalent free voting procedures.

And to go back to Article 13, which reads:

1. Everyone has the right to freedom of
movement and residence within the borders
of each State.

2. Everyone has the right to leave any
country, including his own, and to return to
his country.

As I have noted, the provisions
which I have read to you were incorpo-
rated by reference into a document duly
signed by Leonid Brezhnev, Gustav
Husak, Edward Gierek, and their col-
leagues of the Soviet-bloc states.

Yet, as representatives of the 35
signatory countries of the Helsinki Final
Act gather— representing, as they do, a
total of close to 1.1 billion people— we
know that close to 40% of the people
whose official representatives are
meeting here live in countries whose
leaders do not, in fact, act in compliance
with the provisions to which they have
pledged themselves to be bound and who
seem not to have the intention of chang-
ing their behavior in the future.

What are we to do under these cir-
cumstances? There are some person-
alities, in my country and elsewhere, who
say that the members of the Soviet bloc
have made a mockery of the Helsinki
accords and that the democracies should,
for that reason, abrogate them.

The U.S. Government does not share
that view. We believe that the Helsinki
accords have given the world's democ-
racies a unique platform on which we are
able to expound universal ideas on the
principles of democracy and human
rights and point up the failures of the
Soviet-bloc states to live up to the
Helsinki commitments. (The accords
obviously have other beneficial aspects
as well, which are, however, beyond the
scope of this talk.)

The question which so often arises is
whether our speeches do any good. Are
we advancing our cause thereby?

The issue which is thus put before us
is whether there is any value in com-
municating ideas. History has, indeed,
demonstrated that ideas have conse-
quences. There is value in communi-
cating ideas. At meetings called under
the terms of the Helsinki accords, all of
the participants have the opportunity to
put their thoughts on performance under
these accords before the assembled
group and, thus, before the world public.
It is, indeed, significant that at meeting
after meeting, the democracies have
advocated open sessions and the Soviet
bloc has insisted on closed meetings.

Though most meetings are closed to
outsiders, no one stands in the way of
any one of us from the democratic world
telling the public outside the meeting
room what we have said inside it. It is,
indeed, possible for the CSCE forum to
serve the purpose of telling the world
about violations of the most basic prin-
ciples of human rights in the communist
states of Eastern and East-Central
Europe.

The leaders of these states, I submit,
are not impervious to such criticism.
They are concerned about their standing
in the world. They are also concerned
about the operation of their system. To
the extent to which the message comes
through that their treatment of their
citizens, their failure to respect human
rights, is inexorably linked with their
inability to reach the material goals
which they have set for themselves,
there is a chance that they might
seriously consider changes in their
approach.

There is another important role
which the CSCE meetings play.

Throughout the Soviet-bloc states, as wl
well know, there are millions of people
who share our ideals of freedom,
democracy, and human rights. Some of
them do so quietly. Others have the
courage to speak up. Some of them have
even the courage to speak so clearly anc
so loudly that their governments have
attempted to silence them with severe
punishment. We owe it to these people
to send them a message of hope, a
message that they and their ideals are
not forgotten, that there are others,
representing a majority of the people
around the CSCE table, who share theii
belief in the rights of the individual
and in democratic government and
who will not hesitate to criticize their
persecutors.

Let me say, just to return to my ow
experience in this city in the year 1938,
that I remember well how much it mear
to me and to all those I knew whenever
President Roosevelt made a comment o
was merely reported to have made a
comment which showed his awareness c
our plight.

Thus, I see the value of the human
rights debate at CSCE meetings in the
message it sends to the participating
governments, to the general public, anc
to believers in the human rights cause i
countries which deny these rights. I see
value in a message that the democratic;
are united in their commitment and the
concern.

There are those who believe that it
important when diplomats gather that
they conclude their deliberations with
new obligations, new commitments in a
document which can be presented to tht
world as the product of these latest
deliberations. At diplomatic meetings
dealing with more traditional topics,
such an expectation makes a great deal
of sense. If diplomats gather to deal wit
such issues as border disputes, commer-
cial arrangements, or disarmament, the
success or failure of a meeting depends
on whether such an agreement is
reached.

Consideration of New
Human Rights Commitments

Let us now examine the problems we
face when we move from the discussion
of performance at CSCE meetings to th
consideration of proposed new com-
mitments on human rights.

We start out with the basic problem
that, as I have already noted, a group o
signatories of the Helsinki accords have
never lived up to the human rights prov
sions of these accords, do not live up to

Department of State Bulleti

HUMAN RIGHTS

■em now, and have, in the process of
e discussions, not given any indication
1 at they will live up to them in the
ture. The United States believes that
e existence of past commitments which
We not been complied with presents us
ith a serious problem as to the
edibility of any new commitments,
lould we ask for the express reaffirma-
un of the existing texts? In the absence
changed behavior, why should a new
'omise offer us greater assurance that
will be lived up to than the old one did?
An alternative approach would be to
cept the proposition that we simply
nnot expect the Soviet-bloc states to
Ihere to the human rights provisions of
e Helsinki accords as now written. Let
, therefore, someone may argue, try to
ach new agreements which make
wer demands on the Soviet-bloc
ivernments to deviate from their
i stomary methods of exercising
ithority, agreements which they might
willing to live by.

What that would mean, of course, is
at we are, for the time being and prob-
>ly for quite some time to come, giving
i on holding the Soviet-bloc states to
e provisions of the Helsinki Final Act.
for one, think that our interested
iblic will not want us to relieve the
iviet bloc of the existing human rights
idertakings of Helsinki.

A third approach would be to come
i with a placebo, a string of nice-
unding phrases which, on closer
lalysis, turn out to have no practical
eaning.

There is also the possibility of
aching agreement, not on any new
bstantive commitments but on proc-
s, on ways and means of monitoring
■rformance under the existing
:reements. At least such an agreement
Duld point the way toward constructive
iange.

But what if no agreement is reached
1 new substantive wording on human
g'hts? Should that, by itself, be reason
r great concern? Let me say that I was
lzzled when, at the conclusion of the
)85 Ottawa human rights experts'
eeting held as part of the CSCE proc-
;s, some media representatives called
ie meeting a failure because no final
■xt had been agreed to. What could
ley reasonably have expected: that the
?presentatives of the states which have
:ted in contravention to the provisions
.) the Helsinki Final Act would tell us
lat they have carefully listened to the
I Zest's expressions of concern and that
re have persuaded them of the correct-
iess of our position, that they will,
nerefore, sin no more? Of course not.

If we speak of failure, the failure lies
in the actions of the Soviet-bloc states in
not abiding by the commitments they
entered into at Helsinki. It does not lie
in the absence of an agreed-upon human
rights text at the end of any CSCE
meeting. Success or failure of the human
rights portion of a CSCE meeting lies in
the degree to which it encourages— or
provokes— compliance with human rights
commitments. This, in turn, depends on
the clarity with which the participating
democracies are willing to speak up for
the principles agreed upon at Helsinki
and are prepared to comment on the
evidence of actions contrary to these
principles. I submit to you that by this
standard, the human rights portion of the
Vienna CSCE meeting has already made
a significant contribution.

The Soviet Approach

Up to this point, I have spoken princi-
pally of the role of the democracies in
the context of CSCE meetings. Let me
now add a few words about the positions
taken by the other side.

I have heard it said that under the
new Soviet leadership, the approach of
Soviet representatives to human rights
debates is significantly different from
their past approach, that they are more
willing to engage in human rights
debates than they had been in the past.
Having participated in international
human rights discussions with the Soviet
Union for the last 6 years, I must tell
you that if there is a different approach,
I have not noticed it.

Now, as heretofore, the Soviet
representatives will simply not engage in
serious, substantive discussions of what
we charge are actions contrary to the
provisions of the Helsinki Final Act.
They dismiss our statements about their
abuse of psychiatry, about their
incarceration of poets and writers, about
their suppression of independent trade
unions or even an independent peace
movement as slander. What we need to
remind them is that in the democratic
world, a statement is deemed slanderous
only if it is untruthful, not if it is merely
an unpleasant truth.

Rather than being willing to discuss
the matters about which we express con-
cern, the Soviets and their associates hit
back by telling us what it is that is
wrong in the democratic world. A good
deal of what they say is factually inac-
curate. But inaccurate or accurate, the
Soviet presentations are a tiny fraction
of the criticism, also inaccurate as well
as accurate, which is leveled at our

governments and our social systems day-
in, day-out by domestic critics. One
response to Soviet criticism is: let us
debate. Let us engage in serious discus-
sion of the questions that are being
raised.

They have, for example, criticized
the United States for police wiretaps.
Our response has been that we would be
prepared to discuss the rules governing
such taps by the FBI [Federal Bureau of
Investigation] if the Soviets were
prepared to tell us and discuss the stand-
ards that govern wiretaps by the KGB.
Soviet representatives often also talk
about the Berufsverbot [security
limitations on employment] in the
Federal Republic of Germany. We
assume that our German colleagues
would be prepared to discuss their
Berufsverbot, which applies to com-
munists, if the Soviet Union, in turn,
were prepared to discuss its own
Berufsverbot, which is applicable to all
upper-level positions in the Soviet Union
and which disqualifies all nonmembers of
the Communist Party. On all these
matters, I am sure that the democracies
would be interested in serious discussion
with the communist states if these were
only willing to enter these discussions
rather than engage in sloganeering.

And speaking of "sloganeering," let
me note the Soviet Union's continuing
emphasis in the context of human rights
debates on economic and social rights,
which it likes to juxtapose to political
and civil rights. We are to be left with
the notion that in the area of political
and civil rights, the democracies may be
ahead of the Soviet Union, but with
regard to economic and social rights,
they say, our side is far behind. This
notion— namely, that a centrally plan-
ned, collectivist system will be able to
raise standards of living for the general
population far higher than a private
enterprise system based on incentives-
was commonplace 20 or 30 years ago.
What was then assumed was that
Leninist states would, as time passes, be
able to deliver on their promise of a
more abundant society. The point that
then was made by at least some
democrats was that the price for such
abundance in terms of enslavement of
the average citizen was not worth
paying.

The evidence before us now has
demonstrated that we are not even deal-
ing with trade-offs between political
rights on the one hand and economic
rights on the other. What is clear now is
that the states that guarantee political
rights deliver the reality of a better
standard of living. The states which

April 1987

HUMAN RIGHTS

deny political rights promise a better
standard of living but fail to deliver it.

We are frequently challenged by
Soviet-bloc states to deal with economic
and social issues at human rights
meetings. Let me, therefore, emphasize
that we have no problem discussing such
matters with the Soviet Union or with
anyone else. But in our view, such
matters do not belong at a human rights
meeting. At a human rights meeting, we
can engage in useful discussion of the
meaning of the right to freedom of
speech or to freedom of religion. It is a
right which a government can observe
with ease by simply not interfering with
the exercise of this freedom by the
citizen. If the topic of discussion shifts,
however, to housing or medical care, the
truly meaningful issue is not what rights
the government has guaranteed, what
promises have been made, but what has
been delivered. If the Soviet Union
wants to engage us in a discussion of our
system of delivering, for example,
medical care, we are prepared to engage
in that discussion, but we should under-
stand that such a discussion would make
sense only if we compared the realities,
the quality and extent of care, the

numbers of persons reached, and all
related issues. We would staff our
delegations to such a conference with
persons able and qualified to engage in a
useful, cooperative dialogue. The same
can be said of housing or of any other
aspect of our economic or social struc-
ture. We unquestionably face serious
problems in those fields. So does the
Soviet Union. If, instead of merely
denouncing us, it wants to engage us in
thoughtful discussions of, for example,
substance abuse, we would very defin-
itely be interested. We do not believe we
have all the answers. We are happy to
compare notes with anyone interested in
engaging in serious conversations.

Conclusion

But none of that— and that is our
point— should serve as a distraction from
discussions of human rights, of the
principle of the dignity of the individual
and of the respect which the state owes
the individual. For we in the United
States continue to rely on the fundamen-
tal principle which I set forth in the
beginning: that governments are insti-
tuted among men to secure the rights of

the individual and that these govern-
ments must derive their just powers
from the consent of the governed. Thef
words reflect, I am sure, not only the
point of view of the United States but c
all the democratic participants in the
CSCE process. They also reflect, I am
certain, the point of view of great
numbers, perhaps even great majoritiei
of the citizens of countries whose
governments have not lived up to these
principles. It is to these people above
all— to the Helsinki monitors, to the
members of Charter '77, to the Solidar-
ity movement, to all those who espouse
the cause of freedom— that we must sei
the message not to despair, to ask then
to remember the last stanza of a song c
the 1930s, the song of the Peatbog
Soldiers:

But for us there's no complaining.
Winter will in time be past,
One day we shall cry, rejoicing:
"Homeland, dear, you're mine at last."

■Dr. Koryagin was subsequently release
on February 18. ■

Department of State Bullet

1IDDLE EAST

isit of Israeli Prime Minister Shamir

Prime Minister Yitzhak Shamir of
', State of Israel made an official work-
q visit to Washington, D.C., February
-20, 1987, to meet with President
agan. Secretary Shultz, and other
vernment officials.

Following are remarks made by
cretary Shultz and Prime Minister
amir on February 1 7 and remarks
ide by President Reagan and Prime
■nister Shamir following their meeting
February 18.

2MARKS,

SB. 17, 1987 1

tcretary Shultz

'e been very happy to greet my friend,
e Prime Minister of Israel, and already
have had a considerable amount of
scussion and look forward to our con-
ming discussion. He's here to visit
th us, to visit with the President
morrow, and we have had very produc-
'e meetings.

(White House phnto by Pete Souza)

We've paid special attention to
several areas. First of all, the Prime
Minister and I discussed our relationship
which is strong and deep, and we
reviewed practical ways our two govern-
ments cooperate; our strategic coopera-
tion to help discourage outside threats to
the Middle East; our economic and
security assistance, which support
Israel's own efforts to stay strong— an
essential element in the peace in the
Middle East; our free trade agreement
which we worked out when you were
Prime Minister before; our cooperation
on SDI [Strategic Defense Initiative]
research and the VOA [Voice of
America] transmitter to be located in
Israel.

Second, we talked about the Israeli
economy and efforts Prime Minister
Shamir and his government and the peo-
ple of Israel are making to cut inflation
further and to boost their economic
growth. And we had all of our economic

advisers gathered and had a good discus-
sion on that subject. We agreed that a
strong economy is no less important
than a strong defense, and that Israel
needs to redouble its efforts in this area
to prosper and ultimately reduce
dependence on foreign aid. And as we
discussed problems with the Israel
budget, I had to admit we have a few
problems of our own, so we know it's not
easy, but nevertheless it's important.

And finally, and very important as
we reviewed matters this afternoon, the
Prime Minister and I talked about peace
in the Middle East between Israel and
its neighbors. And we noted that there
has been considerable progress and that
things are working along, but also we
know that there are dangers to both
Israeli and Arab interests and our own
because of continued tension in the area.
We discussed the importance of con-
tinuing efforts at Israeli-Egyptian rela-
tionships and also the importance of pro-
moting a better quality of life for Pales-
tinians on the West Bank and Gaza while
we look more broadly at a possible
political settlement. The immediate
objective of a reactivated peace process
is direct negotiations between Israel and
a Jordanian-Palestinian delegation.

I think I can fairly say, we agree
completely on the importance of direct
negotiations as the vehicle for bringing
out peace. The United States believes it
is important to explore all possible
approaches to this objective to see
whether any of these approaches, includ-
ing an international conference, would
lead immediately to direct negotiations.
All possible approaches that we look at
are designed to get us to direct
negotiations.

So we will stay in close contact and
work closely together. And again, Mr.
Prime Minister, I want to say, on behalf
of my country— and perhaps I could be
allowed, on behalf of myself as a
person— to greet you here is a great
pleasure. You were Foreign Minister
when I became Secretary of State and
we worked through a lot of problems
together. We did some more when you
were Prime Minister, again when you
were Foreign Minister, and now you're
Prime Minister again. You keep shifting
jobs but I stay on the same old job.
[Laughter] But I'll say this, when he
moved from Foreign Minister to Prime
Minister, he didn't discard his old friends
who were still in the Foreign Ministry
business. [Laughter] You stuck with us.

pril 1987

MIDDLE EAST

Prime Minister Shamir

I am very grateful to Secretary of State
Shultz for inviting me, and for giving me
the opportunity to discuss in a very inti-
mate and very serious manner all the
problems we are facing in our area, and
especially the problems of peace, the
tower on the top, always on the top, of
our agenda. I will say a bit about the
various problems we have discussed. The
bilateral relations between the United
States and Israel under the guidance of
President Reagan and the stewardship
of the Secretary of State have acquired
new and impressive dimensions. This
includes our strategic cooperation, the
decision to accord Israel the status of a
major non-NATO ally, the close political
cooperation and coordination, the free-
trade area agreement, Israel's participa-
tion in the SDI program, and the
establishment of a VOA relay station in
Israel.

This strategic cooperation between
the United States and Israel is a very
strong foundation of stability and peace
in our area. It is a driving deterrent
against war, against terrorism, and we
will do all in our possibilities to announce
this cooperation. Secretary Shultz's
wisdom has inspired and made possible
the process to institute organization of
these joint ventures, as well as the prog-
ress relating to economic recovery. We
are grateful for the great interest of the
Secretary of State for our economy. This
interest and the interest and the assist-
ance of his advisers, we know very well
as the Secretary said it, that a strong
Israel means a strong Israeli economy,
and we are very devoted to this task and
it is a great encouragement that
Secretary Shultz is with us with his
thoughts in this important task.

Today, we discussed the economic
situation in Israel and the U.S.
assistance program in relation to it. We
then talked about a wide-range of
bilateral issues and proposals for joint
cooperation. We exchanged assessments
on the political situation in the Middle
East. The various tension points and the
continuing menace of terrorism, a strug-
gle against which both our countries are
totally committed to; advancing the
peace process is always prominent on
our agenda. We both agree that peace
can only be achieved through direct
negotiations. As the Secretary said it,
"the name of the game is direct negotia-
tions." It is a historic imperative and we
will keep it. The Israel-Egyptian peace

which is recognized by all as the cor-
nerstone for peace efforts in the Middle
East could not have become a reality
were it not for our determination to deal
directly with each other. We should ex-
plore every possible avenue to advance
the peace process. On our part, we are
prepared to meet our neighbors sitting
at a negotiating table at any time and
place. The Camp David framework
agreements envisaging a conference
attended by Israel, Egypt, and Jordan,
as well as representatives of the
Palestinian-Arabs living in areas,
remains the most reasonable and prac-
tical approach. I trust the United States
will not agree to substitute this proven
course by Soviet-inspired notions sup-
ported by radical Arab nations such as
an international conference. I will not
deny, I am strongly opposed to this
invention of an international conference
for peace. It will not bring peace to our
area; it will not serve the cause of peace.
Walking together as we have so success-
fully in the past will, I am confident,
ensure that achievement of our common
goal.

The plight of our brethren in the
Soviet Union was also central in our
agenda. There is full agreement between
us and agreement shared by all free peo-
ple everywhere that the Soviet
authorities should grant Soviet Jews the
right to emigrate to their homeland. We
also agreed that Soviet Jews should be
entitled to practice their religion and
give full and [inaudible] expression to
their culture. I am very confident, after
this very successful conversation and the
talks we had today with Secretary Shultz
and his assistants that the cooperation
between our two countries will become
stronger and will bring solutions to all
the problems of our area and especially
to the problem of peace.

REMARKS.
FEB. 18, 1987 2

President Reagan

It's been a pleasure to have an old
friend, Prime Minister Yitzhak Shamir
of Israel, back to the White House. His
visit symbolizes the close and special
relations between our countries. His visit
has provided an opportunity for in-depth
discussion, and I'm pleased to report our
discussions went well.

High on our agenda, of course, was
Middle Eastern peace and our search fc
a constructive approach to Arab-Israeli
reconciliation. We talked about the
dangers that threaten Israel and its
neighbors and efforts being made to
bring a degree of stability to that
troubled region. Measurable progress,
we both agree, is vital. Peace cannot be
built in an environment where there is
no hope.

In our discussions we agreed, again
that the road to peace lies through
bilateral negotiations between Israel ar
its neighbors, including representative
Palestinians. We reviewed the
diplomatic discussions over the last 2
years which we've conducted with
Jordan, Egypt, and Israel— all of whom
share a strong desire to end the conflic
that has plagued the Middle East.

Our goal now is setting in motion a :
process accepted by Israel and its
neighbors which can lead to a com-
prehensive peace settlement. We believ
this requires direct bilateral negotiatioi
Any reasonable means of including an
international conference should be con-
sidered. But the United States remains
ready to be an active partner in any
serious peace effort.

Prime Minister Shamir and I dis-
cussed Iran. I underscored our opposi-
tion to Iran's use of force, terrorism, a
expansionism. In discussing Iran and
other regional issues, the Prime Minis'
and I agreed on the importance of lool
ing to the future, instead of dwelling o
the past.

We also went over our countries'
strong and vital bilateral relationship
and the broad scope of our cooperation
Both our governments face tight
budgets. I assured Prime Minister
Shamir that we will continue our stead
fast support for Israel's own efforts to
ensure its security and economic well-
being. In that regard we have desig-
nated Israel, with other countries, a
major non-NATO ally, for purposes of
cooperation in certain aspects of milita
research and development.

Finally, in our discussions we reaf-
firmed our concern about the plight of
Soviet Jewry. We took note of recent
releases, but are waiting to see the gat
truly opened for Jewish emigration.

The United States and Israel share 1.
many common values and traditions. V
have developed a warm friendship that
encompasses close mutual strategic
cooperation. This relationship, in whicl
each gives special consideration to the

s.
»k

Department of State Bulle

MIDDLE EAST

other's interests, strengthens us both,
jt's unshakable, and we're proud of it.

^s we look to the future, the Prime
ftinister and I are committed to the
'lose cooperation long enjoyed by the

'nited States and Israel.

It is an honor to have Prime Minister
(ihamir with us to reaffirm the solid
ijiond of affection between our countries
;.nd our peoples.

'rime Minister Shamir

it is with profound satisfaction that I
tand here today, as we give expression

I jo the abiding and deep friendship

(■etween our two countries.

America under your leadership
tands tall and upright despite transient
ifficulties. You continue to discharge
our great responsibility as the leader of

, he free world. Without strong United

states leadership, mankind could be
xposed to very grave peril in the hands

I f the forces of evil and totalitarianism.
Our two countries share values,

perceptions, and goals that unite us in
hought and in deed. Since my last visit
s Prime Minister, we have given more
ubstance to agreements we reached

: hen in regard to strategic cooperation
nd the free trade area. Now your
administration has moved one more step

, Drward by giving a new dimension to
ur relations. I refer to your decision to
ccord Israel the status of a major non-
JATO ally. We have been among the

> irst to join your Strategic Defense
nitiative, and we hope to expand our
ooperation in this program. We've also
jst concluded an agreement enabling
he establishment of a relay station for
he Voice of America in Israel. Both
irojects are a reflection of our contin-
dng support of America's defense and
dvancement of freedom.

In our talks today we explored the
irospects of advancing the peace process

■ n the Middle East. While this is not an
•asy task, it is a noble goal to which we

. ire committed. On the foundations of

I he Camp David accords— which remain
he only agreement, therefore, only
dable cornerstone for peace in the

lirea— we renew the call to our neighbors
o join us in direct negotiations for the
)btainment of peace between us. Egypt,
)ur partner to the Camp David agree-
rient, could play a significant role by
encouraging our other neighbors to
"ollow its example and enter into face-to-

I ? ace talks with us without preconditions.

The struggle for the freedom and
repatriation of Soviet Jewry is by no
means over. We must press on with all
vigor to persuade the Soviet authorities
to let all our people return to their
ancient homeland, the land of Israel.

I take this opportunity of expressing
our gratitude to you, Mr. President, for
the great effort you made for the
humanitarian cause of our brothers and
sisters in the Soviet Union. Their hap-
piness at coming home to Israel and
experiencing freedom and democracy is
their and our tribute to you.

This year, 1987, records two events
of great significance in the life of our
two nations: you will celebrate the
bicentennial of the U.S. Constitution,

Kidnappings in Lebanon

PRESIDENTS STATEMENT,
JAN. 26. 1987 1

All Americans, I know, share my
outrage at the latest kidnappings of our
citizens in Lebanon. Not only Americans
but more than 20 citizens from nine
countries are now being held by terrorist
groups there. Today my sympathy goes
out to the friends and relatives of all
those hostages.

The terrorists appear to believe that
by trafficking in human lives they can
force sovereign governments to give in
to their demands. But our government
will not make concessions to terrorist
groups despite their threats. For to give
in to terrorist blackmail would only
encourage more terrorism; to yield to
their demands now would only endanger
the lives of many others later.

I would like to add a special word to
Americans in Lebanon. Where U.S.
citizens are unjustly deprived of their
God-given rights, the U.S. Government
has an obligation to try to restore those
rights. But there is a limit to what our
government can do for Americans in a
chaotic situation such as that in Lebanon
today. In particular, the situation in west
Beirut has deteriorated to total anarchy,

which is regarded as the model for truth,
civil liberties, and democratic govern-
ment. We are marking the 90th anniver-
sary of the birth of our national libera-
tion movement, Zionism, which restored
us to our ancient land and renewed our
national independence. Both events have
enriched the quality of our lives. And
they are the root of our present relation-
ship, joint efforts, our dreams, and our
confidence in the future.

■Made in the Diplomatic Lobby of the State
Department. Question-and-answer session
following remarks is not printed here (text
made available to news correspondents by
State Department Press Office).

2 Made on the South Lawn of the White
House (text from Weekly Compilation of
Presidential Documents of Feb. 23, 1987). ■

with armed criminal groups taking the
law into their own hands. For the past
12 years our government has regularly
warned American citizens against travel
to Lebanon. As recently as last Tuesday
we reiterated our assessment that the
situation there is "extremely
dangerous." The events of the past week
provide striking confirmation of that
assessment. Americans who ignored this
warning clearly did so at their own risk
and on their own responsibility. This
weekend the U.S. Ambassador to
Lebanon again was in contact with re-
maining Americans and advised them to
leave.

Those who hold hostages, regardless
of nationality, should release them im-
mediately and unconditionally. Their
acts of terror constitute a declaration of
war on civilized society. I again join with
civilized countries in condemnation of
terrorist outrages.

In conclusion, let me stress again
that our government remains unrelent-
ing and alert in its search for oppor-
tunities to secure the release of our
citizens no matter how long that may
take.

■Text from Weekly Compilation of
Presidential Documents of Feb. 2, 1987.

April 1987

NARCOTICS

Iran-Iraq War

PRESIDENT'S STATEMENT,
JAN. 23, 1987 1

The current Iranian assault on Iraqi
forces near Basra is a reminder of the
terrible suffering and loss which the
Iran-Iraq war has brought to the peoples
of the gulf region. The continuation of
this bloody struggle remains a subject of
deep concern to the United States and to
the entire world. It is a war that
threatens not only American strategic
interests but also the stability and
security of our friends in the region.

As I have emphasized many times,
we are determined to help bring the war
to the promptest possible negotiated
end, without victor or vanquished, leav-
ing intact the sovereignty and territorial
integrity of both Iran and Iraq. We can-
not but condemn Iranian seizure and
occupation of Iraqi territory, and we
again call upon the Government of Iran
to join the Government of Iraq in seek-
ing a rapid, negotiated solution to the
conflict.

We share the concern of our friends
in the gulf region that the war could spill
over and threaten their security. We
would regard any such expansion of the
war as a major threat to our interests as
well as to those of our friends in the
region. We remain determined to ensure
the free flow of oil through the Strait of
Hormuz. We also remain strongly com-
mitted to supporting the individual and
collective self-defense of our friends in
the gulf, with whom we have deep and
longstanding ties.

PRESIDENT'S STATEMENT,
FEB. 25, 1987 2

On January 23, while the Iranian assault
against Iraqi forces was especially in-
tense, I reiterated the deep concern of
the United States at the suffering and
instability which the Iran-Iraq war has
brought to the gulf region. Since that
time, although Iraq has stopped the
Iranian attack east of Basra and pushed
it back somewhat, the fighting in this

tragic conflict has continued on ground,
in the air, and at sea.

Clearly, the peoples of the region
cannot rest secure until there is a
negotiated end to the conflict. We have
frequently called on Iran's leaders to join
in working toward a negotiated settle-
ment, as the Iraqis have repeatedly
offered to do. Regrettably, the Iranian
Government has so far proved unrespon-
sive in the face of all efforts to
encourage reason and restraint in its
war policy. It has also persisted in its
efforts to subvert its neighbors through
terrorism and intimidation.

We continue to work for a settle-
ment that will preserve the sovereignty
and territorial integrity of both Iran and
Iraq. Toward that end, I have asked
Secretary of State George Shultz to take
the lead in an international effort to
bring Iran into negotiations. Secretary
Shultz has recently named Under
Secretary-designate Ed Derwinski to be
responsible for our Operation Staunch.
This effort has my full support.

As I emphasized in January, this
conflict threatens America's strategic
interests, as well as the stability and
security of all our friends in the region.
We remain strongly committed to sup-
porting the self-defense of our friends in
the region and recently moved naval
forces in the Persian Gulf to underpin
that commitment. We also remain
strongly committed to ensuring the free
flow of oil through the Strait of Hormuz.
Finally, we are determined to help bring
the war to the earliest possible nego-
tiated end. With that goal in mind, the
United States calls for an immediate
cessation of hostilities, negotiations, and
withdrawal to borders. I urge the inter-
national community, in the appropriate
fora and through the appropriate
mechanisms, to cooperate in the
endeavor. The time to act on this
dangerous and destructive war is now.

■Text from Weekly Compilation of
Presidential Documents of Jan. 26, 1987.

z Text from Weekly Compilation of
Presidential Documents of Mar. 2. ■

International
Narcotics Control
Strategy Report
Released

The Bureau of International Narcotics
Matters (INM) has released its annual
assessment of the worldwide narcotics
situation. The 1987 International Nar-
cotics Control Strategy Report (INCSR)
is the basis on which the President will
certify that countries have or have not
cooperated fully with the United States
in 1986 on a range of narcotics control
functions including eradication, interdic-
tion, and legal measures against nar-
cotics production and trafficking.

INM Assistant Secretary Ann
Wrobleski said that "1986 gave us a
clear indication that countries are on the
right track. In many ways, this year was .
a turning point— in attitudes, in commit-
ment, in worldwide resources dedicated
to narcotics control. The international
community has stood up to narcotics pro
ducers and traffickers, and there is
simply no turning back."

The report indicates that coca and
opium production are up again, a
development which comes as no surprise
to Assistant Secretary Wrobleski.
"What we are seeing is traffickers dig-
ging in their heels as governments have
begun to fight back. Traffickers have
planted more coca and opium as an
insurance policy against eradication and
increased interdiction activities both in
Latin America and Asia. But the heat is
on. Trafficking organizations are in for
the long haul— but so are we."

Wrobleski says that 1986 was a year
of mixed news. The year ended with the
good news that both Pakistan and
Jamaica had agreed to use herbicidal
spraying methods of eradication against
opium and marijuana. But opium produc
tion in Burma and Pakistan was up due
to good weather, increased regional
demand, and the increased market price
for opium. In Pakistan, the shift from
martial to civilian law resulted in an
increase in production from an estimated
50 to 70 metric tons last year to a 1986
estimate of between 140 and 160 metric
tons. Burmese traffickers, under pres-
sure from the government's wide-scale

Department of State Bulletin

PACIFIC

pium eradication program, which
liminated 13,600 hectares, increased
leir opium production. Lao opium totals
lcreased as well. Yet Thailand's
igorous opium eradication program
;sulted in meaningful reductions in its
pium crop, from an estimated 35 metric
pns in 1985 to an estimated 20-25
letric tons this year. The combination
f strong political will, efficient enforce-
ment, and a well-publicized eradication
impaign contributed to Thailand's
>:cellent performance.

Coca continues to pose the major
ireat to U.S. drug control efforts,
olivia and Peru produced an estimated
iaximum of 157,000 metric tons of coca
af, and Colombian traffickers con-
nued to manufacture and transport
any tons of cocaine to the United
tates. But some encouraging coca con-
ol developments took place in 1986.
tie Government of Bolivia requested
ie U.S. assistance in shutting down
icaine laboratories; as part of "Opera-
)n Blast Furnace," six U.S. Blackhawk
dicopters were deployed to Bolivia for
;e against laboratories in the Beni area,
ae result, though short-lived, of
Operation Blast Furnace" was a signifi-
nt drop in the price of coca cultivation,
is hoped that this summer's enforce-
ent operation has laid the foundation
r a meaningful coca eradication pro-
am under Bolivian Government
ispices.

During 1986, Colombia suffered at
e hands of drug traffickers. Two major
;sassinations— the former head of the
ational Police, Col. Jaime Ramirez, and
e well-respected journalist Guillermo
ino— did not diminish the Colombian
>mmitment to narcotics control. Presi-
>nt Barco upheld the constitutionality
' the extradition treaty with the United
;ates, a move that resulted in Carlos
ahder's extradition to the United
;ates in February 1987.

There were also historic cross-border
illaborations among Latin American
itions, working together to shut down
e cocaine trade. At the OAS [Organiza-
3n of American States] Conference on
rugs in Rio de Janeiro last April,
•oundwork was laid for a new Inter-
merican Narcotics Commission,
jproved at the OAS General Assembly
Guatemala in November. At Quito in
pril, a group of Andean nations signed
me "Lara Bonilla Treaty," pledging
"eater regional cooperation in the fight
gainst narcotics.

South Pacific Nuclear Free Zone Treaty

DEPARTMENT STATEMENT,
FEB. 5, 1987'

The U.S. Government has been studying
the question of whether to sign the three
protocols to the South Pacific Nuclear
Free Zone Treaty, the treaty of
Rarotonga. The United States has now
completed its study and has decided that
in view of our global security interests
and responsibilities, we are not, under
current circumstances, in a position to
sign the protocols. We have conveyed
our position to the parties to the treaty.

The United States is appreciative of
the role of the Government of Australia
and other parties to the treaty in this
matter, including their efforts to keep
our and allied interests in mind as they
managed the composition of the treaty
and protocols. The United States
also appreciates the serious commit-
ment of the Pacific island states to
nonprolife ration.

J Read to news correspondents by Depart-
ment spokesman Charles Redman. ■

"While we are still engaged in an
uphill battle against cocaine," Assistant
Secretary Wrobleski stated, "we have
realized real reductions in the availabil-
ity of marijuana. Colombian marijuana
cultivation has been significantly
reduced in traditional areas. Belize's
marijuana crop was virtually destroyed
in 1986, and Panama's crop, eradicated
last year, was not replanted. President
Seaga's decision to use herbicides to
eradicate ganja and the Jamaicans'
destruction of 2,200 hectares of mari-
juana is good news on the antimarijuana
front. The Jamaican decision to use her-
bicides in their eradication campaign
should keep marijuana production on
that island down next year."

Rising levels of drug abuse in pro-
ducing and trafficking countries has led
to a new urgency in responding to the
narcotics threat. "Heroin and cocaine
threaten not only American youth, but
Latin Americans, Europeans and Asians.
Just as greedy drug traffickers
marketed 'crack' in this country, they
are finding new markets for their deadly

products all around the world,"
Wrobleski said. "That is why interna-
tional organizations such as the United
Nations, the OAS and ASEAN [Associa-
tion of South East Asian Nations] are
infused with a new sense of commitment
and dedication. We are seeing a single-
minded determination by countries once
indifferent to the drug issue."

Assistant Secretary Wrobleski noted
that 20 countries are involved in drug
eradication efforts compared to two in
1981. "We will continue to encourage
nations to cooperate in narcotics control.
Our aim is simple: to reduce the
availability of narcotics worldwide; this
cannot be accomplished without regional
and global cooperation. The U.S.
understands, however, that international
cooperation is but one element of a nar-
cotics control strategy. During the com-
ing years, we intend to address all
aspects of narcotics control, fulfilling our
obligations at home and abroad," she
said.

Press release 50 of March 2, 1987.

\pril 1987

WESTERN HEMISPHERE

U.S. -Mexico Binational Commission Meets

Secretary Shultz and Mexican
Secretary of Foreign Relations Bernardo
Sepulveda met on January 29, 1987, for
the U.S. -Mexico Binational Commission
meeting. Following are excerpts from the
opening remarks made by Secretary
Shultz and remarks made by the two
Secretaries at the signing of Annex IV to
the 1983 Border Environmental Coopera-
tion Agreement.

SECRETARY SHULTZS
OPENING REMARKS,
JAN. 29, 1987'

We approach our meeting today with a
sense of optimism and a positive spirit.
Our challenge is to deal with the con-
cerns and inevitable problems that
accompany growth, development, and
the interrelationships between us in
ways which benefit both our peoples. We
seek to demonstrate that two large and
great nations can live border by border
in harmony, with a relationship based on
dialogue, cooperation, and mutual
respect.

Secretary Sepulveda and I, along
with our colleagues, can look back on
solid accomplishments from previous
Binational Commission meetings. Last
summer, for example, during President
[Miguel] De la Madrid's visit to
Washington, we resolved our differences
over tuna fishing, and restored access
for Mexican tuna to the U.S. market.
And only 2 days ago, President De la
Madrid inaugurated a new water sanita-
tion plant south of Tijuana, the realiza-
tion of our discussions on resolving the
difficult problem of water pollution in
the Tijuana-San Diego area.

Today, we look ahead to the issues
and problems that face us in 1987 and
beyond. Some are extremely difficult
and have no easy solutions. Let me men-
tion a few of the subjects which will be
discussed.

A vicious drug traffic is a social
cancer infecting our children, the
integrity of our societies, and the lives of
dedicated law enforcement officials on
both sides of the border. President
Reagan and Mrs. Reagan have launched
a vigorous effort to reduce the use of
dangerous drugs by Americans and to
combat international narcotics traffick-
ing. Largely as a result of close coopera-
tion between Attorney General [Edwin]
Meese and Attorney General [Ramirez]
Garcia, Mexico and the United States
have reinvigorated our cooperation

against narcotics production and traf-
ficking. We will discuss today further
joint measures to put the drug traf-
fickers out of business.

Since 1982, Mexico has suffered
severe shocks to its economy caused in
large part by the instability of interna-
tional oil markets. President De la
Madrid and his administration have
taken important steps toward the dif-
ficult goal of adjustment and reform of
the Mexican economy in response to new
international circumstances.

The United States has strongly
encouraged Mexico's efforts, and we will
continue to cooperate with the interna-
tional financial community in support of
Mexico's attempt to restore economic
growth and prosperity. Mexico's
economic health is clearly of major
importance to the United States. Today
we plan to discuss how we can
strengthen our economic, financial,
trade, and investment ties over the com-
ing decade. The United States has
strongly encouraged Mexico's efforts,
and we will continue to cooperate with

the international financial community II
support of Mexico's attempt to reston
economic growth and prosperity.

Both our countries are challenged
the ongoing conflict in Central Americ
We share the objectives of peace, a
stable and strong democracy, and
economic and social development in th|
nearby region. We each have our
national views on how best to attain
these goals. This will be an important
subject in our discussions today.

Last year, the Congress passed th
first major revision to U.S. immigrate
laws in over 30 years. Its primary pur
pose is to bring immigration into this
country under control. We are aware i
Mexico's concerns about the potential
effects of this legislation on its citizen;
The law provides that Mexican and otl
foreign citizens in the United States w
be treated with dignity and respect. M
government is committed to this objec
tive and to discussing Mexico's concer
about the new law.

On January 29, 1987, Secretary Shultz and Secretary Sepulveda sign Annex IV to the U.S;
Mexico Border Environment Cooperation Agreement. The annex will control air pollutio
caused by copper smelters along the border and is part of the 1983 agreement signed by
Presidents Reagan and De la Madrid. The two Secretaries also exchanged notes placing
the annex into force along with Annex III, signed in November 1986, which controls tra
boundary movement of hazardous waste.

Department of State Bulle

WESTERN HEMISPHERE

We look forward to a productive
ly. We expect that, within a framework
■ trust and respect, we can deal frankly
|th the thorny issues, strengthen an
;ready-strong relationship, and insure
fat our children and grandchildren,
Istined to inhabit this continent, will
iofit by enhanced dialogue and
iderstanding between our countries.

1EMARKS,
AN. 29, 1987 2

I'cretary Shultz

'ie Border Environmental Cooperation
toeement was concluded in 1983 by
resident De la Madrid and President
j;agan. We have just signed Annex IV
1 this agreement, which deals with the
joblems of air pollution from copper
jielters in Arizona and Sonora. We
jive also exchanged notes placing that
Snex into force along with Annex III,
1 lieh deals with transboundary move-
i >nt of hazardous wastes and sub-
.« inces. I want to give special credit to
i 'icials from the Mexican Secretariat of
rban Development and Ecology and
>m EPA [Environmental Protection
I ;ency] for their important part in
i gotiating these annexes. Several

I ambers of the Arizona congressional

i legation are here and deserve special

• inks for their advice and support on
. inex IV— and it isn't surprising that

: Dple who live there take an interest—
; d they take an interest, and we're
' ry delighted to be able to work with

II im on this.

Let me quickly note a few other
ll ?as of success. Yesterday, January 28,
1 esident De la Madrid inaugurated the
: st stage sewage treatment works at
I uana. We are grateful for Mexico's
li brts to address this problem. Water
N ality problems, for instance of the
I'W River at Mexicali, and sanitation
■ Dblems are being worked out by the
B ternational Boundary and Water
I'mmission.

Progress is being made on the con-
ruction of the bridges between
B:Allen, Texas, and Reynosa, and Del
lo, Texas, and Ciudad Acuna. Bridge
H ojects are also proposed for
rownsville and El Paso.

These are important achievements
I our countries, exercising good will in
ijaling with common problems. In our
: inion they deserve more public note.
Jie problems get a lot of notoriety;
uen you do something about them,
I'body notices, but we're calling it to

• ■ur attention.

I might say that we've just con-
cluded another of our periodic Binational
Commission meetings. These are occa-
sions when the ministers of various
ministries— and Mexico is represented by
the whole group of heavy hitters who are
here— and we've had one-on-one discus-
sions between counterparts and small
group meetings, and a couple of plenary
sessions— and a pretty good lunch in the
process. And we have agreed that it was
a constructive and worthwhile meeting
summarizing and looking at the overall
situation and seeing that there is a lot of
good in it and a lot of room for improve-
ment, which we are dedicated to getting.

Secretary Sepulveda

What I would wish to say is very much
what you have already mentioned— the
pleasure of the Mexican Government in
being able to make progress with this
question of protecting the environment
in the border area. I think that in a very
short while, we have been able to make a
tremendous step forward in terms of
solving the different aspects of this
environmental question. Only in 1983,
President Reagan and President De la
Madrid signed a convention, a bilateral
treaty by which we took responsibility—
the two of us— for paying far greater
attention to this very important issue.
Since we share a common border, we
have a common responsibility for insur-
ing that the environment is kept healthy.

[These are] the third and the fourth
protocols that we have signed, and they
again show the capacity we have had to
solve problems that we face. I join you in
thanking very much indeed the Ministry
of Urban Development in Mexico which
was very much in charge of concluding
this treaty. I also wish to point out the
relevance of the plans you have men-
tioned. This means solving an important
problem in Tijuana and in San Diego.

As to the meeting we have had,
again it has been a very constructive
meeting. I think that we have been able
to erase from our agenda a number of
issues that were there for quite a while.
Now we can only hope that we shall not
discuss them any longer. Some others
were analyzed in a very positive fashion,
and we can be certain that the good will
shown throughout the series of meetings
we have had will assure us of the
possibility of having some of them also
being erased from the agenda as solved
problems.

It has been a pleasure to work
together with such a distinguished group
of high officials in the U.S. Administra-
tion. I'm sure that my colleagues in the

Mexican delegation join me in thanking
you very much for your hospitality.

[State Department spokesman]
Charles Redman. We have time for a
few questions on the day's activities to
be posed to either one of the ministers.

Q. I'd like to ask which are the
issues which have been erased from
the common agenda?

Secretary Sepulveda. Being an
oldtimer, I'm sure you are aware that in
previous times, in previous meetings of
the Binational Commission, one of the
topics included in the agenda was related
to the tuna embargo— the fisheries ques-
tion that fortunately was solved 4
months ago. It was a good negotiation;
we were very satisfied with it. Now, that
issue will no longer be there in the
agenda.

The other question is that related to
environmental issues, the Tijuana and
San Diego question bothered us for a
number of meetings. Now we can show
clear progress and, again, we are very
satisfied with the inauguration of the
sewage plant that was made the day
before yesterday by President De la
Madrid.

Q. Could you maybe just give us
one or two off the top of the issues
that were not erased? Would those be
economic — just one or two of the
major issues that you're still facing?

Secretary Sepulveda. I just men-
tioned at the end of our meeting that
some of these topics will be with us for a
long time. But what is important is to
see that a good will decision is there, to
see that they are attended and, in some
cases, solved.

As an example, the question of trade
will be there for a long while, because
we have a very close economic relation-
ship. We can only hope to enhance our
trade relationship. What we have to see
is the different issues related to trade
that have to be solved periodically.

The other question, as an example,
would be the one related to drug traf-
ficking. It was very clear that the two
governments are fully committed to the
combat of this aspect of organized crime;
but we have to review in each of our
meetings of the Binational Commission
the progress that is being made, the
exchange of information, and the results
we are obtaining. There could be other
examples— the question of migration-
other issues that are there and that we
have agreed that we are to look at them
very thoroughly and, as I said before,
make as much progress as we can.

pril 1987

WESTERN HEMISPHERE

Secretary Shultz. It's a pleasure to
come to the end of a question-and-
answer period and a unique experience
for me [laughter] not to have any of the
questions. But that being the case, let
me just interject, following up Secretary
Sepulveda's comments with one fact that
has emerged over the last year in the
economic field, which was brought home
to me during the course of the meetings.

It turns out that for the first time in
a long while, the flow of capital that has
been— Mexican capital flowing out— has
shifted. And this past year— you told me,
and this [is] our information— that about
$l l /2 billion have flowed in the other
direction. Now this is a fact of immense
significance, because when the flows are
out, what it means is that any new
capital that is raised and goes there, in a
sense, is transformed and flows out
again, so it doesn't add that much to the
resources available. But when private
capital is flowing back in voluntarily,
that means that the reschedulings and
new money and so forth that you've
arranged for are adding resources and
have all the potential of seeing your
economy improve. So I've always felt
that capital movements, if you watch
them, tell you a big fraction of the total
story. And one reason why I've been so
worried is I've seen capital flow out, and
why I feel so good about the fact that
it's flowing in the other direction.

Historical Study

Collective Security and
the Inter-American System

•Press release 16 of Jan 29, 1987.
2 Press release 17 of Jan. 30. ■

This paper, by David S. Painter of
the Office of the Historian, is one of a
series that provides background informa-
tion on selected foreign policy issues. It
was released by the Department of State
in November 1986.

The Western Hemisphere has a unique
experience of international cooperation
that goes back to the late 19th century.
In the 1930s and 1940s, the American
states developed procedures for collec-
tive response to external aggression and
conflicts among nations of the hemi-
sphere. These procedures were formal-
ized in the Rio treaty and the Charter of
the Organization of American States
(OAS). They have proved valuable in
preventing or halting hostilities and have
also been used to mobilize support
against communism.

Background, 1989-1945

The inter-American system is the oldest
regional society of nations in the world,
dating back to the First International
Conference of American States, held in
Washington from November 1889 to
April 1890. The concept of collective
security emerged as a major element in
the inter-American system during the
1930s in response to attempts by the
Axis Powers to increase their economic
and political influence in Latin America.
At inter- American conferences in
Montevideo (1933), Buenos Aires (1936),
and Lima (1938), the American states, in
response to U.S. initiatives and U.S.
pledges of non-intervention, agreed that
whenever the peace of the hemisphere
was threatened, the foreign ministers of
the American republics would meet to
consult on possible common action. A
series of resolutions adopted at the first
three meetings of foreign ministers
(Panama, 1939; Havana, 1940; and Rio
de Janeiro, 1942) further developed the
inter- American system of collective
security as the American states affirmed
the principle of hemispheric solidarity
against external aggression and estab-
lished mechanisms to promote defense of
the hemisphere. Meeting in Mexico City
in March 1945, the American states
adopted the Act of Chapultepec, which
provided for collective action, including
the possibility of the use of armed force,

against aggression from either a non-
American or hemispheric nation and
pledged the signatories to negotiate a
permanent inter- American collective
security treaty once the war had end(

The Rio Treaty

The goals of solidarity, cooperation, i
collective response to aggression and lei
procedures for consultation develope<
the late 1930s and early 1940s were f
malized in the Rio treaty (the Inter-
American Treaty of Reciprocal
Assistance), adopted at the Inter-
American Conference for the Mainte
nance of Continental Peace and Secu
rity, held near Rio de Janeiro betwee
August 15 and September 2, 1947. T
Rio treaty established a permanent
inter- American regional security
mechanism within the framework of
UN Charter.

Under the treaty's terms, the sig
tory nations agreed to act collectively
the event of aggression against any (
of them whether it was an armed att
or some other type of threat to their
ritory, sovereignty, or independence.
Collective action could be taken not (
against non-American aggressors bu
also against any member of the regie
community which threatened the pea 1
The treaty provided that any party t 5
terms could initiate a meeting of fort n
ministers by making a request to the
Governing Board of the Pan Americ;
Union (predecessor of the Permanen
Council of the Organization of Ameri n
States). The Governing Board could ; o
act provisionally as the organ of cons
tation until a meeting of foreign min;
sters could assemble. Decisions on th
application of sanctions against aggr
sors had to be approved by a two-thii
vote of a consultative meeting and w
binding on all signatories, with the
exception that no member could be
required to use armed force without
consent. The Rio treaty went into efi t
on December 3, 1948.

The OAS Charter and
Collective Security

At the Ninth International Conferem
of American States, held at Bogota f m
March 30 to May 2, 1948, the Amerin

Department of State Bui I

WESTERN HEMISPHERE

Dublics approved a Charter of the

■ ganization of American States (OAS),
lich placed the inter- American system

i. a treaty basis and set forth its
^iding principles, defined the rights and
ities of its members, and described its
i janizational structure.

Among the essential purposes of the
US, the charter included strengthening
m peace and security of the hemi-
spere; preventing disputes among mem-
br states and ensuring the peaceful
s;tlement of disputes that did arise;
cnmon action by the American states
i the event of aggression; seeking the
s ution of inter- American political,
j idical, and economic problems; and
pmoting economic, social, and cultural
(velopment.

The OAS Charter provided for a
i mber of collective security mecha-
1 ;ms to deal with threats to the peace
jd security of the Americas. Meetings
( foreign ministers were to be held to
( isider problems of an urgent nature
t i to serve as the organ of consulta-
1 n. The charter specified how and
I ien such meetings should assemble and
1 -ther provided that in cases of aggres-
s n, the American states "shall apply
} i measures and procedures established
i the special treaties on the subject."
'< e charter also declared that "no State
i group of States has the right to inter-

■ le, directly or indirectly, for any
] ison whatever, in the internal or

i ternal affairs of any other State."
'. ;asures "adopted for the maintenance
i peace and security in accordance with
i isting treaties," however, did not con-
: tute a violation of this principle. The
i i.S Charter went into effect on
: cember 13, 1951.

The Bogota conference also
; proved an American Treaty on Pacific
ttlement, known as the pact of
igota, which provided for good offices,
;diation, investigation, conciliation,
d arbitration of disputes. The treaty
tered into force only for those states
tifying it and, so far as their relations
;re concerned, superseded a number of
ior inter-American agreements on
aceful settlement of disputes to which
ey were party. To date, 14 states have
trfied the treaty. The United States
med the treaty but has not ratified it.

Elective Security in Action

Elective security procedures have been
iplied under both the Rio treaty and
1 e OAS Charter, most often under the
rmer but with reference to the latter
ji several occasions. The majority of

Members of the Organization of American States

and Signatories to the Rio Treaty

States

OAS Members -

Rio Treaty -

Antigua and Barbuda

Dec. 3, 1981

Argentina

Apr. 10, 1956

Aug. 21, 1950

The Bahamas

Mar. 3, 1982

Nov. 24, 1982

Barbados

Nov. 15, 1967

Bolivia

Oct. 18, 1950

Sept. 26, 1950

Brazil

Mar. 13, 1950

Mar. 25, 1948

Chile

June 5, 1953

Feb. 9, 1949

Colombia

Dec. 13, 1951

Feb. 3, 1948

Costa Rica

Nov. 16, 1948

Dec. 3, 1948

Cuba

July 16, 1952

Dec. 9, 1948

Dominica

May 22, 1979

Dominican Republic

Apr. 22, 1949

Ecuador

Dec. 28, 1950

Nov. 7, 1950

El Salvador

Sept. 11, 1950

Grenada

May 13, 1975

Guatemala

Apr. 6, 1955 2

Haiti

Mar. 28, 1951

Mar. 25, 1948

Honduras

Feb. 7, 1950

Feb. 5, 1948 2

Jamaica

Aug. 20, 1969

Mexico

Nov. 23, 1948

Nicaragua

July 26, 1950

Nov. 12, 1948 2

Panama

Mar. 22, 1951

Jan. 12, 1948

Paraguay

May 3, 1950

July 28, 1948

Peru

Feb. 12, 1954 2

Oct. 25, 1950

St. Christopher-Nevis

Mar. 13, 1984

St. Lucia

May 22, 1979

St. Vincent and

the Grenadines

Dec. 3, 1981

Suriname

June 8, 1977

Trinidad and Tobago

Mar. 17, 1967

June 12, 1967

United States

June 19, 1951 2

Dec. 30, 1947

Uruguay

Sept. 1, 1955

Sept. 28, 1948

Venezuela

Dec. 29, 1951
strument of ratification.

Oct. 4, 1948

'Date of deposit of the in

2 With reservation(s). ■

cases have involved longstanding inter-
American tensions, rivalries, or territo-
rial disputes, and the collective security
mechanisms of the inter- American
system have generally been able to halt
hostilities among disputants, if not to
resolve the underlying causes of conflict.
In many instances Permanent Council
action has been sufficient, and the
foreign ministers have not had to meet.
With a few exceptions, OAS action
has consisted of investigating conditions
and facilitating peaceful settlement of
disputes. Sanctions were first imposed in
1960 when the sixth meeting of foreign
ministers called on member states to
break diplomatic relations and suspend
trade in arms with the Dominican
Republic.

Although the inter-American
system's collective security arrange-
ments provide for the use of armed force
in certain instances, the American states
have been reluctant to exercise this
option. In the case where military per-
sonnel have been utilized in conflict
resolution, their role, with few excep-
tions, has been limited to that of
observers or expert members of fact-
finding missions.

Communism and
the Cuban Threat

Several applications of collective and
security mechanisms have involved the
issue of communism, and since 1959 the
Castro regime in Cuba has been a source

dn'I 1987

WESTERN HEMISPHERE

of special concern. The 1948 Bogota con-
ference and the fourth meeting of
foreign ministers (1951) adopted U.S.-
sponsored resolutions condemning com-
munism and calling on the American
states to adopt measures to eradicate
and prevent communist activities.

In response to U.S. initiatives, the
Tenth Inter- American Conference, held
in Caracas in March 1954, declared that
control of the political institutions of any
American state by the international com-
munist movement would constitute a
threat to the independence and peace of
the Americas and would call for a con-
sultative meeting in accordance with
provisions of the Rio treaty.

In June 1954, the United States and
nine other member states requested a
meeting of foreign ministers under the
provisions of the Rio treaty due to "the
demonstrated intervention of the inter-
national communist movement in the
Republic of Guatemala and the danger
which this involves for the peace and
security of the Continent." Although the
OAS council voted to convoke a meeting
of foreign ministers, the Guatemalan
Government was overthrown before the
ministers could assemble.

In August 1960, the seventh meeting
of foreign ministers adopted the Declara-
tion of San Jose which, while not naming
Cuba specifically, condemned "the inter-
vention or the threat of intervention" by
an extracontinental power in the affairs
of the American republics, and rejected
the efforts of the "Sino-Soviet powers"
to destroy hemispheric unity.

The eighth meeting of foreign
ministers, held in Punta del Este from
January 22 to 31, 1962, rejected com-
munism as a means of achieving eco-
nomic development and social justice and
declared that adherence by any OAS
member to Marxism-Leninism was
incompatible with the inter- American
system. This incompatibility, a majority
of the foreign ministers decided,
excluded the present Government of
Cuba from participation in the inter-
American system. The meeting of
foreign ministers called on members to
suspend trade in arms with Cuba,
excluded Cuba from participation on the
Inter-American Defense Board (IADB),
and established a Special Consultative
Committee on Security (SCCS) to make
recommendations on countering inter-
national communist subversion in the
hemisphere. (The OAS terminated the
SCCS in December 1975.)

Following the discovery of arms
originating in Cuba on the Venezuelan
coast in late 1963, the ninth meeting of
foreign ministers, held in Washington in

July 1964, condemned Cuba for seeking
to subvert and overthrow the Govern-
ment of Venezuela and imposed sanc-
tions which included the breaking of
diplomatic and consular relations and the
suspension of trade and sea transporta-
tion, except for foodstuffs, medicine, and
medical equipment.

Three years later, the 12th meeting
of foreign ministers condemned Cuba for
its intervention in Venezuela, Bolivia,
and other American states and appealed
to other Western states to restrict their
trade with Cuba.

By the end of the 1960s, several
states had begun to question continuing
sanctions against Cuba. After the 15th
meeting of foreign ministers in Novem-
ber 1974 failed to adopt a resolution
calling for an end to sanctions, the 16th
meeting of foreign ministers, on July 29,
1975, approved a resolution which left
member states "free to normalize or
conduct in accordance with the national
policy and interests of each their rela-
tions with the Republic of Cuba at the
level and in the form that each State
deems advisable."

An Inter-American
Peace Force

The Rio treaty created the political
framework for collective security, but it
did not establish a combined military
command (such as NATO) nor a military
planning agency. Since its creation by
the third meeting of foreign ministers in
1942, the IADB has performed an advis-
ory role outside the formal structure of
the OAS. In 1962, with U.S. assistance,
the IADB established an Inter-American
Defense College to provide advanced
training for selected personnel from the
armed forces of the Americas.

In these circumstances, inter-
American peacekeeping forces have been
ad hoc and temporary. In October 1962,
at the urging of the OAS Council,
Argentina and the Dominican Republic
participated in the U.S. quarantine of
Cuba. In 1965, the 10th meeting of
foreign ministers sponsored the creation
of an inter- American peace force to help
restore peace in the Dominican Republic.

Following the Dominican experience,
some OAS members, led by the United
States, called for the creation of a per-
manent inter- American peace force to
serve as the military arm of the
organization in future collective actions.
Although this idea was discussed at
various inter- American conferences over
the next 2 years, it failed to gain the
support of a majority of American
states. The OAS also rejected a June

1979 U.S. proposal to establish an OAc
peacekeeping force to help restore ordr
in Nicaragua and provide conditions
under which free elections could be hel

OAS Charter and
Rio Treaty Revisions

Almost two decades after the Bogota
conference of 1948, the Third Special
Inter- American Conference met in
Buenos Aires between February 15 am
27, 1967, and approved a series of
amendments to the OAS Charter (pro-
tocol of Buenos Aires). The protocol
created the General Assembly as the
new supreme body of the OAS (replaci:
the Inter-American Conference) and
strengthened and broadened the
organization's economic and social fun<
tions. No structural or procedural
changes were made in the organizatior
security functions, nor was the Rio
treaty affected by the charter amend
ments. The amendments went into efft
in February 1970.

In July 1975, a conference of
plenipotentiaries meeting in San Jose
approved a protocol of amendment to
the Rio treaty drafted by the Special
Committee to Study the Inter-Americs
System, created by the OAS General
Assembly in 1973. Among its provisior
the protocol narrowed the geographic
area covered by the treaty, eliminating
Greenland and some high seas areas;
limited its applicability to member stat
rather than to all American states; pre
vided that nothing in the treaty was tc
be interpreted as impairing "the princ
pie of nonintervention and the right of
all States to choose freely their politic;
economic and social organization;" anc
added a provision stating that "for the
maintenance of peace and security in t
Hemisphere, collective economic secur
for the development of the Member
States of the Organization of Americai
States must also be guaranteed throug
suitable mechanisms to be established
a special treaty."

The United States, in signing the
protocol, included a reservation stating
that it accepted "no obligation or com-
mitment to negotiate, sign or ratify a
treaty or convention on the subject of
collective economic security." This rest
vation was retained when the United
States ratified the protocol on Septem-
ber 20, 1979. To date, only 7 member
states (of the 14 necessary for the
amendments to enter into force) have
ratified the protocol of amendment. ■

Department of State Bullet

WESTERN HEMISPHERE

Plan for Fully Funding
sIBCCA Recommendations

"A Plan for Fully Funding the
ecommendations of the National Bipar-
san Commission on Central America
a report to the President and the Con-
fess prepared by the Department of
tate, Agency for International Develop-
ent, and the Office of Management and
udget in March 1987.

RESIDENT'S MESSAGE
ll TO THE CONGRESS.
:AR. 3, 1987

lie one hundred million dollars in assistance
jr the Nicaraguan democratic resistance
liproved by Congress in October of last year
las intended as only one aspect of an inte-
rated, comprehensive approach for United
Lates efforts to promote economic and
ilitical development, peace, stability and
hmoeracy in Central America and to encour-
Ke a negotiated resolution of the conflict in
e region. In that law (Title II of the Act
laking appropriations for military construe-
)n for the fiscal year ending September 30,
H87, as contained in Public Laws 99-500 and
1 ►— 591, hereinafter "the Act"), the Congress
cognized, as does the Executive branch,
at the Central American crisis has its roots
| a long history of social injustice, extreme
iverty, and political oppression. These condi-
>ns create discontent, which is often
iploited by communist guerrillas in their
lar against democracy. The focus of United
,ates policy in Central America goes beyond
e military aspects of the problem. To help
■•Idress the underlying social and economic
i .uses of conflict in the region, the Congress
rected that additional economic assistance
i made available for four Central American
'mocracies: Costa Rica, El Salvador,
aatemala, and Honduras.

I rogress Toward Democracy

emocracy is making great strides in these
■ur countries. Their progress in building
icieties in which their citizens enjoy freedom
' choice and equal justice under law stands
marked contrast to the totalitarian sub-
[ .gation suffered by the Nicaraguan people,
his progress, however, cannot be sustained
ithout concurrent economic growth,
olitical freedom cannot prosper in an
ivironment of hunger and despair. Nor, as
mnd by the National Bipartisan Commission
a Central America (NBCCA), can we expect
ie Central American democracies to recover
!'om a severe economic recession without
gnificant outside assistance. The Central
merican democracies cannot attract ade-
uate private investment to achieve sus-
linable economic growth in the current

environment of violence and subversion. The
four democratic nations of Central America
will have little appeal for investors as long as
there is an aggressive communist regime
nearby— a militant regime bent on ideological
expansion and already in command of the
largest army in the history of Central
America.

Congressional Attempt
To Aid the Democracies

To help the Central American democracies
preserve their hard-earned progress in mak-
ing democracy work, the Congress in October
1986 approved in section 205 of the Act the
transfer of three hundred million dollars in
unobligated funds for economic assistance to
the Central American democracies. Title III
of the Act also appropriated an additional
three hundred million dollars for this purpose,
to be available through fiscal year 1987.
Unfortunately, despite the best intentions of
those in the Congress who supported the
additional assistance for Central America and
despite this Administration's strong support
for that assistance, the Foreign Assistance
Appropriations Act mandated that the three
hundred million dollars be regarded as part of
the specified (and very limited) FY 1987
worldwide total for economic support fund
assistance, thus precluding us from consider-
ing this sum as additional assistance. As a
practical result there could be no increased
aid for Central America. When this became
apparent, we shared the great disappoint-
ment of bipartisan supporters in the Con-
gress, not to mention the Central Americans
who were counting on this assistance after it
had been approved in both the Senate and
House of Representatives.

Report to Congress
on Assistance Needs

Clearly, there is the desire in the Congress to
make good on this commitment. Toward that
end, there is a provision in the law that the
Executive branch should develop a plan
for fully funding the assistance to the Central
American democracies proposed in the
January 1984 report of the National Bipar-
tisan Commission on Central America. I am
transmitting that plan to the Congress with
this message.

The Bipartisan Commission determined
that the Central American crisis was the
result of a long history of interrelated
political, security, and socio-economic condi-
tions and recommended a greatly expanded
financial assistance program for the years
1984-89. The Central America Democracy,

Peace and Development Initiative (CAI),
transmitted to the Congress in February
1984, was designed to accomplish most of the
NBCCA's recommendations. This program
concentrated on strengthening democratic
institutions, arresting economic decline while
promoting stabilization and recovery and
increasing the benefits of growth. Results in
the political sector have been more rapid than
anticipated. In the economic and social areas
much also has been achieved. Nevertheless,
this progress remains fragile and much
remains to be done. The plan herewith
transmitted to the Congress proposes a
3-year extension of the program's execution
until 1992. The extension would increase the
total amount of funds originally recom-
mended in the CAI for the period FY 1984 to
FY 1989 from $6.4 billion to $6.9 billion in
appropriated funds for the period FY 1984 to
FY 1992. As economic recovery in the region
proceeds, the benefits of growth, economic
and political stabilization will be enjoyed by
an ever-increasing percentage of the region's
population.

After reviewing the findings of this study,
I have concluded that additional assistance is
required immediately in order to help meet
the economic goals of the Bipartisan Commis-
sion and to keep faith with the millions of
men and women who through hard work and
sacrifice are making democracy a living real-
ity in Central America.

This assistance is urgently required to
help meet the great economic and social
needs of the struggling democratic govern-
ments of the region. By generating conditions
of violence in Central America that under-
mine prospects for economic growth, the com-
munist government of Nicaragua works to
discredit the democratic system as a viable
alternative for development. To offset this
effort, it is the responsibility of the friends of
democracy to help Central America's
democrats prove that even in adversity
democracy offers their people a better way of
life. The Soviet Union and its allies have pro-
vided the Sandinista regime military hard-
ware and sufficient economic aid to keep
Nicaragua's failed economy afloat. The
United States must help those small nations
in Central America that have chosen freedom.

Request for Additional Assistance

To carry out the recommendations contained
in the report being forwarded to the Con-
gress, Section 215(2) of the Act further pro-
vides expedited procedures for requests from
the President for additional economic
assistance for the Central American
democracies. I hereby request that such
expedited consideration be given to my
request for an additional $300,000,000 for
fiscal year 1987 as economic support fund

l^pril 1987

WESTERN HEMISPHERE

assistance for Costa Rica, El Salvador,
Guatemala, and Honduras, notwithstanding
section 10 of Public Law 91-672.

In order to assure that this additional
assistance is fully consistent with applicable
requirements of law and sound budget prin-
ciples, I further request that the amounts
made available for this additional economic
assistance for Central America be transferred
from unobligated balances in such accounts as
I may designate for which appropriations
were" made by the Department of Defense
Appropriations Act, 1985 (as contained in

Public Law 98-473); the Department of
Defense Appropriations Act, 1986 (as con-
tained in Public Law 99-190); the Department
of Defense Appropriations Act, 1987 (as con-
tained in Public Laws 99-500 and 99-591);
and the Department of State Appropriations
Act, 1987 (as contained in Public Laws
99-500 and 99-591).

I urge the prompt enactment of a joint
resolution expressing approval of this
request.

Ronald Reagan

An AID irrigation project helps small farmers produce nontraditional crops for
export.

LETTER TO THE PRESIDENT,
FEB. 17. 1987

The Congress has instructed the Secretary <
State, the Administrator of the Agency for
International Development, and the Directo
of the Office of Management and Budget to
develop a plan for fully funding assistance t<
the Central American democracies proposed
in the January 1984 report of the National
Bipartisan Commission on Central America.
The legislation required that a report descri
ing the plan for full funding of the recomme
dations be provided to the Congress no latei
than March 1, 1987. We have completed our
work, and we are very pleased to transmit t
report to you.

Our report indicates that, with our help,
the Central American democracies have mat.
great strides in improving democratic proc-
esses and respect for human rights, the ess«
tial underpinnings of all free societies. Signi
cant progress also has been made toward
economic stabilization in the region. In addi
tion, more free market-oriented economic
policies are beginning to develop. If these
policies can be nurtured and there is furthei
progress in this direction, a key objective of
the plan described in our report, then the
foundation will have been laid for sustained
economic growth. The report also relates
achievements and goals in spreading the
benefits of economic and social progress. Tc
help ensure that this progress is solidified, t
report recommends that the timeframe of tl
plan be extended to 1992 with a modest
increase of $500 million in the originally
recommended levels of financing to be pro-
vided by the United States.

The ongoing process of realizing inter-
related political, social, economic, and secur
ity objectives of our Central American
neighbors remains fragile. While a great de
has been accomplished, much remains to be
done. If the recommendations set forth in t
report are implemented by the Central
American governments with the support an
encouragement of the United States, there
reason to expect further progress toward
achieving stronger democracies, more solid!
based economies, and greater social equity,
a more stable and secure environment. The:
goals are of fundamental importance to U.S
national interests.

Sincerely,

George P. Shultz
Secretary of State

James C. Miller III

Director, Office of
Management and Budge'

M. Peter McPherson

Administrator, Agency f
International Developme

Department of State Bullet

WESTERN HEMISPHERE

ummary

i the Continuing Resolution of October
)86', Congress requested that the
■scretary of State, the Administrator of
ID, and the Director of OMB develop a
an for fully funding the assistance to
ie Central American democracies pro-
ved in the January 1984 report of the
ational Bipartisan Commission on Cen-
al America (NBCCA). Congress also
■quested that the report include recom-
endations on how more effective use
.n be made of U.S. agricultural com-
odities in alleviating hunger and con-
futing to the economic development in
1 e region.

This paper outlines the Commission's
commendations, assesses the status
id prospects of achieving these in
)sta Rica, El Salvador, Guatemala, and
onduras, as required by law. Consist-
it with the original NBCCA report, it
so addresses Belize and Panama. It
oposes a plan for fully funding the
sistance proposed by the NBCCA. The
.per also includes a section on agri-
ltural commodity assistance and
ricultural programs, prepared in con-
ltation with the Secretary of
n-iculture.

isential Recommendations
the Commission

ie NBCCA determined that the crisis
Central America had indigenous roots
a long history of social injustice,
ildistribution of national income,
vernment oppression, and closed
litical systems. It identified three
separable elements of the crisis—
litical, security, and social/economic
■ues.

In the economic and social areas, the
immission recommended a greatly
panded financial assistance program
d estimated that $21 billion (excluding
caragua) would be required (including
0-$12 billion in U.S. assistance) for
e period 1984-90. The NBCCA
ressed its belief that economic
ogress would depend on reductions in
gional violence, improved economic
ilicies, and performance by the Central
merican economies, increased
onomic assistance beginning in 1984,
id an ever-improving world economic
ivironment. Not all of these assump-
)ns have been borne out since 1984. To
Idress the political and security
lements, the NBCCA recommended
ultiyear funding of military aid to the
•gion, without specifying funding
'vels.

In February 1984, the President
transmitted to Congress proposed
legislation— known as the Central
America Democracy, Peace, and
Development Initiative (Central America
Initiative or CAI)— which encompassed
many of the NBCCA's recommendations
and requested $8.4 billion in U.S.
Government assistance and guarantees
for the region for the period FY
1984-89. The Central America Initiative
concentrated on the economic, social,
and democratization areas and empha-
sized four principal goals:

• Strengthening democratic institu-
tions and processes;

• Arresting economic decline and
promoting economic stabilization;

• Laying the basis, through struc-
tural transformation, for sustained
economic growth; and

• Increasing equity and spreading
the benefits of economic growth.

The CAI was launched in 1984, when
Congress approved $370 million in sup-
plemental funds, and its basic policy pro-
visons were enacted in 1985 as a new
Chapter 6, Part I, of the Foreign
Assistance Act of 1961.

Prospects for Achieving
the Commission's Objectives

In the political sphere, there has been
rapid and substantial progress.

Democratization and Human
Rights. As proposed in the CAI, U.S.
efforts and assistance now focus on
facilitating the electoral process,
strengthening national legislatures,
improving the administration of justice,
expanding citizen participation in
democratic processes, and promoting
freedom of the press.

In the economic and social sphere,
the CAI proposed an ambitious series of
goals, and, despite difficulties, much has
been achieved.

Economic Stabilization. Sharply
increased economic assistance has
facilitated an upturn in the region's
economic situation. Nevertheless, prog-
ress toward recovery is fragile and the
continued implementation of improved
policies is vital.

Structural Transformation. The

CAI proposed a strategy for generating
economic growth, based primarily on
increased private investment and the
rapid growth of nontraditional exports.
Investment levels have increased

modestly but steadily. The growth in
nontraditional exports has been very
encouraging.

Spreading the Benefits of
Economic Growth. The CAI emphasized
rapid economic growth as the most
important vehicle for achieving higher
standards of living. In some countries,
this is likely to be insufficient to ensure
benefits for poorer groups. Therefore, a
number of specific programs in the
education, health, family planning, and
housing fields are being implemented.
Although significant progress has been
achieved, not all of the original targets
have been met.

Regional Security. The defensive
capability of the region's democracies
has been strengthened. Central
American militaries have used U.S.
assistance to improve organization,
training, and equipment. Fostering
stability in the region is a long-term
undertaking, however, and it is unlikely
that broad U.S. security objectives for
the region will be fully realized by the
end of the decade.

Problems Encountered. While
substantial progress has been made
toward achievement of the Commission's
objectives, this progress has taken place
under conditions substantially more
adverse than those assumed by the Com-
mission. External economic trends,
notably world prices for Central
America's main export commodities,
have been substantially worse than
anticipated. The Commission projected
that the military/security climate would
be largely resolved within 18 months
from the time of the report. There have
been improvements, but the military/
security climate remains unsettled and is
a major impediment to capital invest-
ment and economic recovery.

The Need for Full Funding
of NBCCA Recommendations

Economic assistance levels for Central
America have been substantial over the
past 3 years, but they have been
diminishing and falling short of the
levels recommended by the NBCCA, par-
ticularly with respect to appropriated
funds. The shortfall in appropriated
funds will be approximately $760 million
by the end of FY 1987, assuming
passage of the $300 million requested as
supplemental economic assistance for
the Central American democracies. This
$300 million is needed immediately. Any
reduction in the FY 1987 supplemental.

Vprit 1987

WESTERN HEMISPHERE

Key Facts on the Commission

The National Bipartisan Commission on
Central America (referred to in this study
as "the Commission") was named in July
1983 by President Reagan to advise on "a
long-term U.S. policy that will best
respond to the challenges of social,
economic, and democratic development in
the region and to internal and external
threats to its security and stability."

Henry A. Kissinger served as Com-
mission Chairman. The Commissioners
were: Nicholas F. Brady, Henry G.
Cisneros, William P. Clements, Jr., the
late Carlos F. Diaz-Alejandro, Wilson S.
Johnson, Lane Kirkland, Richard M.

Scammon, John Silber, the late Potter
Stewart, Robert S. Strauss, and William B.
Walsh. Senior Counselors were Jeane
Kirkpatrick, Winston Lord, William D.
Rogers, Daniel K. Inouye, Pete V.
Domenici, Lloyd Bentsen, Charles McC.
Mathias, William S. Broomfield, Jack F.
Kemp, James C. Wright, and Michael D.
Barnes. Harry W. Shlaudeman served as
Executive Director.

The Commission submitted its report
to the President on January 10, 1984. The
complete text was published commercially
as The Report of the National Bipartisan
Commission on Central America (N.Y.:
MacMillan Publishing Co., 1984).

of course, will increase the shortfall
further.

We propose to fund the Central
America Initiative fully by extending the
period of execution of the program by 3
years to 1992. This would increase the
originally recommended amount of
appropriated funds by approximately
$500 million to a total of $6.9 billion,
while the level of $2 billion in guarantees
remains unchanged. It is important to
note that if the Central America Ini-
tiative had ended in 1989, an ongoing
assistance program would have been
required to consolidate and sustain
economic and social progress. The pro-
posed extension is responsive to funding
limitations under the budget deficit
reduction act and reflects the difficulties
inherent in the implementation by
sovereign governments of essential
reforms. It also reflects the political and
security realities of the region, the exter-
nal conditions of world markets, the
limited availability of external capital
from other public and private sources,
and investment attitudes. The decision
to extend the CAI is a practical response
to a changed situation.

The 3-year extension would ensure
that:

• There is a solid trend in all the
countries toward democratization;

• The region's economies are
stabilized;

• Essential structural reforms are
institutionalized; and

• Mechanisms are in place for a
broader distribution of increasing
economic benefits.

The projected assistance levels also
reflect a shift in focus, beginning in FY
1989, away from stabilization and

toward an increased emphasis on struc-
tural transformation that leads to
economic growth and a broadening of its
benefits. The levels are predicated on
the assumption that the Central
American governments will implement
economic measures to promote export-
led growth and essential structural
reforms. We hope that the major
economic objective of the CAI—
recovery— will be achieved by FY 1992
and that the need for economic support
assistance will be less. Central America's
development is a long-term proposition,
however, and a need for well-designed
development assistance programs will
continue beyond 1992.

The extended program will not vary
significantly from that currently under-
way, although the pace of accomplish-
ment will vary among countries and
goals. U.S. assistance to democratization
has grown in size and sophistication and
will continue to focus on facilitating the
election process, strengthening the
capabilities of legislators, improving on
the administration of justice, expanding
citizen participation, promoting freedom
of the press, and providing new training
and educational opportunities for Cen-
tral Americans in the United States
under the Central American Peace
Scholarship program. The term and level
of continued balance-of-payments sup-
port for economic stabilization will vary
by country but should decline signif-
icantly by 1992. The focus of our
economic support assistance will shift
toward macroeconomic and sector
policies designed to institutionalize sus-
tained growth, as the requirement for
balance-of-payments support declines.
As economic stabilization benefits are
achieved, progress to ensure the

spreading of the benefits of the region\
economic growth will increase.

Agricultural Commodity Assistance
and Agricultural Programs

The United States has provided
increasing amounts of food commoditie;.
to Central America and continues the
effort to use its programs more effec-
tively to alleviate hunger and contribute
to economic development in the region.
The Administration uses its food aid
authorities to support the CAI, primari
through traditional PL 480 programs, |
Section 416 of the Agriculture Act of
1949, new benefits allowed under
PL 480, and the new Food for Progress
program. In addition, the Central
American governments are undertakin;
under PL 480 self-help activities
designed to contribute to their general
economic development.

The CAI was not designed to solve
all of Central America's problems in 5 <
6 years but rather to assist these coun-
tries to take the essential steps require
to establish the basis for gradual, steac
and sustainable political and economic
progress over the longer term. These a
still achievable goals and significant
progress has been made toward them,
is clear, however, that the timeframe ft
laying a firm political and economic
foundation must be extended. Also, out
firm commitment to the NBCCA and tl
CAI objectives must be sustained into
the next decade, if we and the Central
American democracies are to succeed i
achieving the goals of the NBCCA.

. Essential
Recommendations
of the Commission

MAJOR GOALS

The National Bipartisan Commission o:
Central America found that the Centra
American crisis had indigenous roots ii
a long history of social injustice,
maldistribution of national income,
government oppression, and closed
political systems. The crisis had been
brought to a head by an ongoing intern
tional economic recession and Soviet-
Cuban intervention in the region. The
Soviet- and Cuban-supported Nicaragu;
military buildup, the Sandinista export
of revolution, and the Marxist insur-
gency in El Salvador were signs of a
deteriorated security environment.

Department of State Bullet

WESTERN HEMISPHERE

orts to achieve peace, social progress,

economic well-being were undercut
extremist violence, subversion, and
ernally supported insurgency.

damentally, the crisis elements were
itical, security, and economic/social

es that were intertwined; none could

eparated, and each had an impact on

others.

Therefore, the analyses and recom-
ndations of the NBCCA report were
anized around these three major
egories. (See Appendix A for a list of

report's major recommendations and
ammary. 2 )

OERVIEWOF
CNDITIONS, 1983-84

1-ing the summer of 1983, when the
I CCA began its deliberations, Central
A erica probably was experiencing its
list serious crisis.

• The security of Guatemala and El
S vador was seriously threatened by

I ist insurgencies, widespread political
v. ence from the extreme right, and
a! lificant human rights abuses.

• Nicaragua was providing sites for
command, control, training, and
stical support of Salvadoran insur-
ts; the country was becoming
■easingly militarized.

• Soviet-bloc deliveries of military
plies to Nicaragua had grown; Soviet,
>an, and other Soviet-bloc military
sonnel numbered in the thousands.

• El Salvador already had suffered
nuch as $1 billion in damage to infra-
lcture and other economic losses

ti the conflict.

• Between 1980 and 1983, the
ion's per capita income declined 12%
nost 20% in El Salvador, following an
;ady sharp decline between 1978 and
0).'

• Between 1980 and 1982 approx-
.tely $1.5 billion in capital had left the
ion.

• Private investment had
i mmeted.

• The region's external debt was
ii billion.

• More than one-half million

i dgees and displaced persons were in
. region, and perhaps as many had
'1.

• Foreign exchange reserves were
|)leted.

'■ • Social services were deteriorating.

• Judicial systems in some countries
re virtually inoperative, suffering

m decades of neglect and abuse by
trenched interests.

• Only two countries (Costa Rica
and, since 1982, Honduras) had
democratically elected presidents.
(Newly independent Belize also had an
elected prime minister, who had come to
office during the British colonial
administration.)

NBCCA FUNDING PROPOSALS

On the economic side, the NBCCA
recommended an expanded financial
assistance program sufficiently large and
comprehensive to help Central
Americans recreate conditions for "sus-
tainable economic growth." A major
objective was to recover, by the end of
this decade, the per capita income levels
of 1980 for five countries (i.e., Belize,
Costa Rica, El Salvador, Guatemala, and
Honduras) and that of 1982 for Panama.
This would require an average annual
real growth rate of about 6% by 1990— a
difficult goal under the best of
circumstances.

The NBCCA estimated that an
external financing requirement of $24
billion for the region ($21 billion
excluding Nicaragua), most of which
would have to come from official
creditors. Approximately $12 billion was
expected to come from international
institutions, other donor countries, and
through loans nd investment from
private sector sources. The estimate also
included at least $10-$12 billion in U.S.
financial assistance and guarantees over
the period 1984-90. The NBCCA pro-
posed a program of U.S. Government
assistance of $8 billion over the next 5
fiscal years (FY 1985-89).

Achievement of the economic
recovery target was predicated on four
assumptions.

• Without a considerable reduction
in the levels of violence, efforts to revive
the regional economy would fail.

• Over time, the Central American
countries would adopt a coherent set of
economic policies.

• External economic assistance
would increase significantly beginning in
1984.

• The global economic environment
would continue to improve.

On the political/security side, the
NBCCA recommended multiyear fund-
ing of military aid to the region to
ensure predictability of support over the
long term. For El Salvador, the NBCCA
recommended more military assistance
based upon sufficient progress in human
rights, free elections, and political
reforms. The recommended approach

Central America Defined

There are seven sovereign nations on the
isthmus between Colombia and Mexico-
Panama, Costa Rica, Nicaragua, Hon-
duras, El Salvador, Guatemala, and
Belize— but not all are necessarily
included when the term "Central
America" is used.

For purposes of addressing the Cen-
tral American security and diplomatic
crises, the Commission focused on five
countries: El Salvador, Hondoras,
Nicaragua, Guatemala, and Costa Rica.
This is the same definition as that of the
Contadora process. These states together
made up the Captaincy-General of
Guatemala during the Spanish colonial
period and have shared traditions and
cultural similarities.

For purposes of addressing Central
American economic and political develop-
ment, however, the Commisssion included
Belize and Panama. Unless otherwise
noted, economic data cited in this report is
for Belize, Costa Rica, El Salvador,
Guatemala, Honduras, and Panama.
Nicaragua does not publish up-to-date
data on its economic performance and has
excluded itself from U.S. development
activities.

required strengthening the profes-
sionalization of each country's armed
forces in order to combat insurgency and
deter the Nicaraguan military threat.
Without sufficient improvement in the
regional security situation, meaningful
political, economic, and social progress
would be impossible.

THE CENTRAL AMERICAN
INITIATIVE

The Commission formally submitted its
report to the President on January 10,
1984. On February 21, the President
transmitted to the Congress proposed
legislation for FY 1984-89, known as the
Central America Democracy, Peace,
and Development Initiative, which
encompassed more than 40 of the
NBCCA's recommendations. To imple-
ment the program, $8.4 billion in U.S.
assistance (including $2 billion in
guarantees) was requested for the period
(see Appendix B).

Although the Congress did not agree
to commit itself to fund a multiyear pro-
gram until 1985, on August 10, 1984, it
did appropriate $370 million to begin
implementing the Commission's recom-
mendations. The FY 1985 Continuing
Resolution of October 12, 1984, con-
tained 88% of the $1.11 billion in
economic assistance funds requested by

ril 1987

WESTERN HEMISPHERE

the Administration for the coming fiscal
year. The proposed strategy, funding,
and supporting activities were organized
around four fundamental elements or
goals.

Strengthening democratic institu-
tions and processes to bring about
greater participation in the political
and development processes. This ele-
ment, perhaps the most important to the
long-term success of our effort, recog-
nized that the basic purpose of economic
development is increased human
welfare, best achieved within a
democratic environment. It initially
focused on improving electoral and
judicial institutions and processes and on
a major new scholarship program.

Arresting economic decline and
stabilizing the region's economies. The

principal means would be world
economic recovery, balance-of-payments
support from external sources, and
implementation by the Central American
countries of sound exchange rate,
monetary, and fiscal policies. It was
hoped that this phase would be com-
pleted in 2-3 years, depending on the
level of violence, the amount of external
assistance, conditions in the world
economy, and the will of the countries to
initiate stabilization measures.

Economic transformation and lay-
ing the basis for sustained economic
growth. Economic policy reforms were
needed to decrease dependence on tradi-
tional agricultural export crops and to
create a sound foundation for diversified
and export-led growth of nontraditional
agricultural crops and manufactures,
once political and economic stability was
achieved. This is a much longer process
than financial stabilization and involves a
series of continuing reforms in such
areas as exchange rate, interest rate,
and tariff policies, as well as other
measures to stimulate private savings
and investment, diversify the region's
production and export base, and develop
markets for diversified production.

Increased equity and spreading the
benefits of economic growth. The CAI

called for improvements in infant mor-
tality rates, primary school enrollments,
housing and infrastructure, and other
areas affecting socioeconomic well-being.

II. Prospects for Achieving
NBCCA Objectives

DEMOCRATIZATION AND
DIPLOMATIC EFFORTS

There has been substantial progress in
Central America toward institutionaliz-
ing democratic processes and improving
respect for human rights. While
democratic institutions in El Salvador,
Honduras, and Guatemala are still
fragile and need continued support,
progress has been more rapid than many
anticipated. Since May 1984, El
Salvador, Guatemala, Honduras, and
Costa Rica have held open and honest
presidential elections, as was the
parliamentary election in Belize.

With the return to constitutional
government in several countries, respect
for human rights also has improved. In
Guatemala and El Salvador, the number
of politically motivated deaths and disap-
pearances has been reduced
dramatically.

There also has been a fundamental
change in military attitudes about the
need to respect human rights in coun-
tries where, in the past, military and
security forces had been involved in
gross violations of human rights.
Nowhere is that change more apparent
than in El Salvador, where both the
military and civilian leadership are com-
mitted to improved human rights per-
formance. Military personnel now
receive human rights training, and the
National Police recently inaugurated a
comprehensive course in human rights
that is mandatory for all personnel. In
the past 2 years, human rights violations
have been reduced to a fraction of their
previous levels. Similar improvements in
human rights performance have
occurred in Guatemala.

The relationship of the military to
the state also has been the subject of
important legislative changes. In several
countries basic laws governing the
military have been changed to prohibit
or limit its participation in politics.

Nicaragua remains the major excep-
tion to the democratic advances in Cen-
tral America. The Sandinista govern-
ment continues to work actively against
the democratic trend within and outside
that country's borders. Democracy also
suffered a setback in Panama in 1985
when the country's elected president
resigned under pressure from opponents
including the Panamanian Defense
Force.

Under the CAI, U.S. assistance to
the process of democratic political
development in Central America has
increased in scope and sophistication
We have a strategy for supporting
democratic political developments, baa
on the recognition that democracy is ai
evolutionary process involving a range
civic institutions, cultural attitudes, an
sociopolitical resources. U.S. efforts to
promote and strengthen democracy in
the region focus on the following areas
facilitating the electoral process,
strengthening national legislatures
improving the administration of justice
expanding citizen participation in
democratic processes, promoting
freedom of the press and democratic
labor organizations, and exposing
thousands of Central American youths
and future leaders to life in the United
States.

The United States has implemen
new methods to reinforce its tradition
support for democratic institutions, su
as labor unions, private and voluntary
organizations, and cooperatives. For
example, the United States Informatic
Agency (USIA) has increased its pro
gramming of U.S. speakers traveling (
Central America and of Central
Americans invited to the United State
to discuss democratic processes. (For
further details on USIA's programs, s
Appendix D.) AID, with USIA's
assistance, has initiated a scholarship
program to bring to the United States
Central Americans from nonelite
backgrounds who otherwise would nol
have an opportunity to study here.

The U.S. Government also has
encouraged the activities of nongover:
mental organizations, particularly the
National Endowment for Democracy ;
affiliated institutes of the U.S. Chamb
of Commerce, the AFL-CIO, and the
Republican and Democratic Parties.

A major U.S. effort involves supp
for improving the administration of
justice. In March 1985, AID provided
funding for the UN-affiliated Latin
American Institute for the Prevention
Crime and Treatment of Offenders
(ILANUD) to expand its assistance to
the Governments of Costa Rica, El
Salvador, Guatemala, Honduras, and
Panama. The 5-year ILANUD prograi
has three principal components:

• Training courses for judges, pre I
ecutors, and other judicial system per-
sonnel;

• Technical assistance to improve
the collection of criminal statistics, to
modernize information systems, to

WESTERN HEMISPHERE

i velop better law libraries, and to sup-
1 1 basic commodities for courtrooms;
i

' • Assistance to develop programs
s ted to each country's judicial system
si problems.

In addition, the United States has
vrked to improve the administration of
jvtice through assistance to the Inter-
/•lerican Bar Foundation which is
s engthening links among bar associa-
tes in Central America. Also, the
Epartment of Justice has developed a
p>gram to enhance the skills of
ii estigators who develop evidence for
jiges and prosecutors, as well as the
fewledge of judges who supervise
il estigations.

The Center for Electoral Assistance
ad Promotion (CAPEL)— a private,
r npartisan institute promoting free and
f r elections established by the Inter-

I lerican Institute for Human Rights

\ ;h AID assistance— has sent observers
t the national elections in the region
i I cosponsored a series of training
c irses on election laws and procedures.
, The United States also has helped

I I legislatures of El Salvador,

( atemala, and Honduras to design and

{ lduct training programs for their

1 mbers and to begin developing perma-

i it support systems that will

s engthen their capacity to participate

i democratic decisionmaking.

Finally, the Central American Peace
! lolarship program has brought more
1 in 3,400 Central Americans to the
1 dted States for professional and skills
I .ining and to observe the practice of
( nocracy in the United States.

) plomatic Efforts

' e United States has consistently pur-
! 3d the NBCCA's recommendations
lit U.S. policy test "Nicaragua's will-
i mess to enter into a general agree-
i :nt" and support a just and lasting
! ution to the Central American crisis.

The United States has supported the
'. tin American initiative for a
i gotiated solution to the crisis, known
i the Contadora process, since its incep-
|n in 1983. U.S. objectives in Central
.nerica are consistent with the 21
.]ints listed in the September 1983
. icument of Objectives and which the
'mtadora countries (Cclombia, Mexico,
'tnama, and Venezusla) and the five
•ntral American states agreed were
sential for a lasting peace. Common
jectives include the ending of military
stilities, reductions in foreign military

advisers and equipment, the end of sup-
port for insurgencies, and dialogue
between insurgents and the govern-
ments they oppose— leading to open,
competitive, democratic processes in
which all citizens may participate. So
long as it is fully implemented by all par-
ties, the United States will support and
respect a comprehensive, verifiable, and
simultaneous implementation of an
agreement fully embodying the Docu-
ment of Objectives.

To date, the Sandinistas' conviction
that they are a revolutionary
"vanguard" that must exercise national
leadership has kept them from
negotiating seriously to fulfill the Con-
tadora goals. This claim to exclusive
political power is fundamentally incom-
patible with the other Central American
nations' pluralistic vision of democracy.

Through 1985 and 1986, the San-
dinistas repeatedly hampered efforts to
conclude an agreement. For example, in
June 1985, Nicaragua's refusal to
discuss an agreed-upon agenda
torpedoed a Contadora meeting and tem-
porarily interrupted Contadora negotia-
tions. In November 1985, the San-
dinistas went public with extensive,
detailed objections to the September
1985 Contadora draft agreement that
was similar to a September 1984 draft
they had said that they would accept. In
December 1985, they called for a
6-month suspension of the negotiations.

With the Contadora negotiations
deadlocked in 1985 because of Sandinista
intransigence, four South American
countries (Argentina, Brazil, Peru, and
Uruguay) formed the Support Group in
an effort to revitalize the negotiating
process. In January 1986, the Contadora
and Support Groups issued a "Message
of Caraballeda" urging resumption of
Contadora talks and other steps to
resolve the crisis. In June, the Con-
tadora and Support Groups presented
the Central Americans an amended draft
agreement. The Central American
democracies noted that this draft con-
tained major deficiencies; it essentially
left open key provisions and asked them
to "sign now and negotiate later." They
called for further negotiations to
strengthen the draft. The Sandinistas
stated that they would accept the new
draft agreement on the condition that
future arms talks be held on their terms.
In July, they filed suit against Costa
Rica and Honduras at the International
Court of Justice, effectively blocking
further negotiations on the agreement.

In September 1986, the Contadora
countries met at the United Nations in
New York to discuss ways of reviving

the negotiating process. After a spirited
debate, the OAS General Assembly in
Guatemala in November accepted by
acclamation a resolution urging Con-
tadora to persevere in its efforts to find
a negotiated settlement. The UN
General Assembly adopted a similar
resolution the following week. On
November 18, the UN and OAS Secre-
taries General presented a joint initiative
listing services available from their
organizations to assist Contadora.

Contadora and Support Group
foreign ministers met in mid-December
and announced their intentions to insti-
tutionalize the process by scheduling
regular meetings and expanding its
scope to include other regional political
and economic issues. They also
announced a January 1987 tour of Cen-
tral America accompanied by the UN
and OAS Secretaries General. The
January 19-20 visit demonstrated their
continuing interest in seeking an agree-
ment, but no breakthroughs resulted.

Costa Rica invited the presidents of
the four Central American democracies
to meet on February 15, 1987, in San
Jose. At that time Costa Rica presented
a new peace proposal focusing on the
key issue of national reconciliation and
democratization in Nicaragua. The San-
dinistas have criticized the summit and
Costa Rica's peace plan. In a parallel
effort, on February 6, seven parties of
the Nicaraguan civic opposition pre-
sented a proposal to achieve national
reconciliation.

The United States has sought to
cooperate with the Contadora process.
From June to December 1984, the
United States participated in bilateral
talks with the Sandinistas at the request
of Contadora. In January 1985, after
nine rounds of talks, the United States
decided not to schedule further meetings
due to concern that the Sandinistas were
using the talks to avoid a comprehensive
agreement within Contadora's
multilateral framework.

On February 10, 1986, Secretary of
State Shultz met in Washington with the
foreign ministers of the Contadora and
Support Groups. The Secretary reiter-
ated that the United States was pre-
pared to reopen bilateral discussions
with Nicaragua if the Sandinistas talked
to their democratic opposition, including
the armed resistance.

In March 1986, Ambassador Philip
C. Habib became the new Special Envoy
for Central America. Ambassador Habib
has made 10 trips to the region to meet
with Central American and Contadora/
Support Group leaders and reaffirm our
support for the negotiating process.

pril 1987

WESTERN HEMISPHERE

TABLE 1

Macroeconomic
Central America,

Indicators for
1983 and 1986 1

Indicator

GDP Growth Rate

1983

- 0.8%

1986

(est.)

+ 1.4%

Private Investment
(°/o of GDP)

8.9%

1 1 .4%

Private Capital
Flows

-$101
million

+ $215

million

Government
Fiscal Deficits
(% of GDP)

5.1%

2.8%

Total Nontraditional
Exports

$808
million

$1,221
million

Nontraditional
Exports to U.S.

Fruits and
Vegetables

$33
million

$66
million

Manufactures

$290
million

ja.

$440
million

'Excludes Nicarag

(For further information on the
political situation in Nicaragua and the
other Central American countries, see
Appendix C.)

ECONOMIC AND SOCIAL ISSUES

Economic Stabilization

Central America underwent a severe
economic contraction during the early
1980s. Total production declined yearly
between 1980 and 1983, causing per
capita incomes to fall by 12% over the
period. The decline in production was
reflected in a sharp fall in private invest-
ment, massive capital flight, and a
general deterioration of the economic
climate.

Sharply increased economic
assistance resulting from implementa-
tion of the NBCCA's recommendations
facilitated a turnaround in the region's
economic situation. Table I summarizes
the main macroeconomic conditions in
1983 and 1986 and presents several key
indicators of progress to date in stabiliz-
ing the region's economies. The reversal
of the downward spiral in overall produc-
tion is the broadest indicator of this
turnaround. After declines of -2.6% in
1982 and -0.8% in 1983, regional gross
domestic product rose in 1984 by 1.7%,
in 1985 by 0.9%, and in 1986 by an
estimated 1.4%.

Overall economic conditions have
substantially improved. Nevertheless,
the recovery is still precarious. The
economic growth rate of 1.4% in 1986
falls short of the 2.5%-3.0% hoped for
2 years ago. The two most significant
shortfalls have been in Guatemala,
where major U.S. funding did not begin
until an economic stabilization program
was implemented in 1986 after the tran-
sition to an elected government, and in
El Salvador, where continued guerrilla
attacks and destruction make economic
stabilization and recovery more difficult.
In addition, El Salvador suffered a major
earthquake in October 1986, causing a
conservatively estimated $822 million in
damage to infrastructure alone.

The slowness of the recovery
appears to be the result of both internal
and external factors. The major factors
are as follows.

An adverse political/military
climate still exists. The NBCCA pro-
jected that the major problems— insur-
gency in El Salvador and Nicaragua and
the destabilizing political conflict be-
tween Nicaragua and its neighbors-
would largely be resolved within 18
months of the report's issuance (i.e., by
sometime in 1985). This has not proven
to be the case.

External economic trends have
been worse than anticipated. Sluggish
world economic growth and unfavorable
commodity prices have limited Central
American growth. The NBCCA had an-
ticipated that prices of the major export
commodities of Central America— coffee,
sugar, bananas, beef, and cotton— would
slowly recover from the very low levels
existing during the 1981-83 period.
However, prices of sugar, cotton, and
beef remain significantly below their
1980 levels. After rising in 1985-86, cof-
fee prices have fallen below the
depressed levels of 1982-84.

Anticipated capital inflows have
not materialized. The NBCCA report
projected total inflows of capital during
the 1984-90 period of $21 billion
(excluding Nicaragua), including $10-$12
billion to be provided by the U.S.
Government. Actual U.S. assistance
flows have been behind schedule; even if
a $300 million FY 1987 supplemental is
approved, the cumulative shortfall
through the current fiscal year will be
$760 million. An anticipated repatriation
of capital sent abroad earlier and sharp
upsurges in private domestic and foreign
investment and in World Bank lending
have not occurred.

Governments have been slow to
make economic policy changes. To

varying degrees, governments have bei
reluctant to take some of the steps
necessary to resolve their economic
problems.

Progress in exchange rate realig
ment has been substantial but remair
incomplete. This is not an issue in Beli
Costa Rica, or Panama. Guatemala
adjusted its exchange rate for most
transactions to a realistic level in earlv
1986 and has pledged to complete the
process. El Salvador also undertook a j
major adjustment in 1986 but has not
made needed followup adjustments. In
Honduras, the exchange rate remains
policy concern.

Economic policy coherence has n
been fully achieved. In addition to dif
ficulties in maintaining an appropriate
exchange rate system, El Salvador,
despite the substantial gains of 1984 a
1985, continues to suffer from a lack c
public and private consensus on
economic policy. Costa Rica's overall
economic policy under the current
administration has been the subject of
protracted negotiations, while its rela-
tionship with its commercial creditors
deteriorates.

Government deficits are still too
large. Fiscal deficits have been cut
sharply, but further reductions are
needed in some countries. A relaxatioi
of fiscal discipline in Costa Rica is
threatening to undo some of its prog-
ress, while the Salvadoran Governmer
inability to control fiscal deficits
threatens inflationary pressures.

Implementing such structural
economic reforms presents a dilemma
for fragile democratic governments. It
the short run, such actions impose
economic hardship on some groups up<
which the governments depend for suj
port. Over the long term, failing to cot
rect underlying structural problems wi
only lead to worsening economic condi
tions for the entire country. U.S.
economic assistance, therefore, must b
conditioned upon implementation of
needed reforms, or ever-higher
assistance levels will be required just t
prevent further economic decline.

Structural Transformation

The CAI proposed a strategy for
generating economic growth by the eni
of the decade, based on increased privf
investment, reduced government inter

Department of State Bulle

WESTERN HEMISPHERE

jntion, and accelerated growth of non-
.aditional exports. Gross domestic
roduct (GDP) growth in the region was
irgeted to reach 6% per year by 1990,
'ieled by new investment, particularly in
■intraditional export products. Non-
aditional exports were projected to rise
lorn $400 million in 1983 to $1 billion by
•90. The following reviews progress to
ite.

Investment. Domestic private
vestment in the region declined
iarply during 1980-83. For the region
| a whole, the ratio of private invest-
ment to GDP fell from 16% in 1980 to a
Ijw of 9% in 1983. Since then, the ratio
eadily rose to more than 11% in 1986,
ith all of the countries (except Belize)
alizing some recovery by 1985.
| The most promising trend has been
i Costa Rica, where the private invest-
Hent/GDP ratio fell from 17% in 1980 to
' % in 1982 but then regained its 1980
l/el by 1985. This turnaround can be
tributed primarily to the significant
onomic policy reforms undertaken by
je Costa Rican Government during that
iriod. Sharp declines in private invest-
snt occurred in Belize, Guatemala, and
jnduras. In El Salvador, the ratio
mained in the 6%-7% range during
'80-83, then rose to 8.4% in 1985 and
12% in 1986. This level, however, is still
r below those of the 1970s.

While improvement in overall
onomic conditions is likely to stimulate
vestment from larger firms, the
nited States is actively engaged in
ore direct efforts to promote small
isiness. A series of specific projects is
iderway, including technical assistance
small business, training of managers,
id increased credit.

Another important aspect of improv-
g the investment climate has been the
duction in the role of government
iterprises. The United States supports
forts to sell or liquidate such enter-
■ises in several countries, notably Costa
ica and Honduras, eliminating a serious
■ain on government finances, and
lproving efficiency of operation. A
imber of firms already have been sold
• liquidated. In Costa Rica, the drain on
wernment resources from the state
tiding company has been reduced from
55 million in 1983 to only $5 million in
)86; the figure is expected to drop to
■ro in 1987.

Nontraditional Exports. Although
bntral to long-run prospects for sus-
iiined growth, nontraditional agricul-
iral and industrial export products can-
st play a significant economic role in

CHART I

Central America: Manufactured Exports to the U.S., 1984-86

$ millions

20 40 60 80 100 120 140 160 180 200 220

H 1 1 1 1 1 1 1 1 1 1

Belize

Costa Rica

El Salvdor

Guatemala

Honduras

Panama

V/////A

the near term. For Costa Rica, the
largest exporter of manufactures,
manufactured exports to the United
States (the primary extraregional
market) were valued at only $100 million
in 1983 or less than 10% of total
exports. Even a doubling of this figure
would have a smaller effect on export
earnings than a significant rise in coffee
prices.

A sustained effort over a decade or
more will be needed if nontraditional

products are to play an important role in
generating export earnings. An annual
growth rate of 15%-20% per year in
nontraditional exports would seem to be
necessary both for arriving at substan-
tial export levels in the medium term
and for maintaining the attention of
policymakers to the potential in this area
for further rapid growth through appro-
priate policy changes.

The experience so far has been
encouraging. Nontraditional exports

Vpril 1987

WESTERN HEMISPHERE

CHART II

Central America: Commodity Exports, 1980-92 3

$ billions
7 T

6 ■•

5 ■■

4 ■■

3 ■■

2 ■ ■

Traditional

Central American
Common Market

□

Nontraditional

7?.

1980 '81

'82 '83 '84 '85 '86 '87 '88 '89 '90 '91

'92

a Data for 1980-86 are actual; those for 1987-92 are projected.

have been growing since 1983 at an
annual rate of 15%. As a result, their
share of total exports has risen from
21.6% in 1983 to 26.5% in 1986. We pro-
ject (see Chart II) that they will rise to
40% by 1992, providing a basis for
dynamic growth by then. Nevertheless,
the speed with which countries have
been able to move to an export-led
growth rate has varied.

Costa Rica appears to be on a rapid
growth path, with exports to the United
States rising from $72 million in 1982,
when policy reform began, to an
estimated $211 million in 1986— an
annual growth rate of about 30%.
Panama, Guatemala, Honduras, and
Belize also show favorable trends in non-
traditional exports to the United States,
although they began from much smaller

bases than in the case of Costa Rica. In
El Salvador, a significant decline
occurred in 1985 and 1986, suggesting
that the policy framework and civil strife
contributed to an inadequate environ-
ment for stimulation of new exports.

Spreading the Benefits of
Economic Growth

Rapid economic growth is probably the
most important vehicle for achieving
adequate standards of living for the peo-
ple of Central America. Economic oppor-
tunity for all groups in society is most
likely to result from growth of employ-
ment opportunities and from replace-
ment of government controls and non-
price rationing by market forces.
However, disparities in income and
opportunity in some countries are so

wide that a direct attack on such prob
lems is needed.

To promote progress in these social
and economic opportunity areas, the
Central America Initiative considered i
crucial to assure that the benefits of thi
growth process are broadly distributed.
Significant progress is being achieved.
Table II summarizes our best estimates
of social indicators for 1983 and 1986.
Specific activities in these areas are
described below.

Education. Under the CAI, the
United States and other donors have
undertaken a series of projects aimed a
increasing access to education, includin;
the following.

Access to primary education has
significantly increased over the past

WESTERN HEMISPHERE

*veral years in the countries with the
bst serious problems— Guatemala, El
.lvador, and Honduras. In Guatemala,
E gross enrollment ratio increased
!wn 71% to 76% between 1980 and
086, and in Honduras by 9%. For El
[dvador, current data are not available
teause of the October 1986 earthquake.
S'ese increases reflect AID inputs,
fcernal efforts, and large amounts of
instance from the World Bank and the
I<;er-American Development Bank.

Efficiency of education also is
■proving. In Guatemala, the average
imber of student-years of schooling
reded to produce a sixth-grade
f aduate has dropped by 1 year since
180, and in Honduras it has dropped by
]i years. In Belize, Panama, and Costa
l:a, where access to primary education
i already close to complete, improve-
(mts in efficiency also are taking place.

Between 1984 and 1986, more than
t> million textbooks were produced and
< itributed in the region through AID
id World Bank projects. Another 9
i llion textbooks are planned for pro-
cction and distribution between 1987
id 1990.

The United States has supported
i lining of 16,000 teachers in Guatemala
; d Honduras during the past 4 years,
! d plans are underway for training
j other 50,000 during the 1987-90
] riod.

I Current U.S. -financed projects have
! oported construction or renovation of
i 100 classrooms in Honduras and El
il lvador, with smaller efforts in
I .atemala and Costa Rica. Plans for
i other 4,000 during 1987-90 are being
i plemented.

AID has important vocational,
' ;hnical, and management training
i tivities underway or in development in
i ch country. In Honduras and Costa
i| ca, 6,000 managers were trained
■ I tween 1984 and 1986, and 20,000 per-
I ns are expected to benefit from voca-
liinal, technical, and/or management
fj lining between 1987 and 1990.

Health and Nutrition. Available
i ta indicate that infant mortality is
■ dining in the region. The goal of
3 during infant mortality by 10% can be
tpected to be attained by 1989. AID's
i alth projects focus on developing a
; stained capacity to provide oral

hydration therapy (ORT), immuniza-
•>ns, and other important child-survival
.terventions and to reduce the inci-

nce of malaria.

'. Oral rehydration therapy reduces
jfant mortality by treating the dehydra-
>n resulting from diarrhea by the

TABLE II

Trends in Social Indicators, 1983 and 1986

Social Indicator

Health

Infant Mortality Rate (per 1,000 births)

Education

Primary School Enrollments 1

Percent of Population (Ages 7-1 2) 1
Primary School Completion Rate 1
Central American Peace Scholars

Family Planning

Couples using Family Planning
Percent Coverage

El Salvador Land Reform

Titles Issued to Phase I Cooperatives
Phase III Titles Issued

1983

(est)

1986

61.1

56.9

(1985)

3,040,000

3,300,000

90%

91%

72%

75%

—

3,497

1,150,000

1 ,400,000

37.5%

41 .7%

196

5,456

17,426

'Education statistics exclude El Salvador, for which current data are not available.

ingestion of a simple solution of water,
sugar, and salts. This technology already
has prevented thousands of deaths each
year in Central America. AID-supported
programs include local production of
ORT solutions in Guatemala and mass
media campaigns promoting its use in
El Salvador.

The rate of immunization coverage
in Central America, except in Costa Rica
and Panama, is low. AID helps to vac-
cinate children and to institutionalize
vaccination programs. In Guatemala, a
new AID-funded project assists the
Ministry of Health to make immuniza-
tions routinely available in all health
facilities. Each household in rural
Guatemala is visited three times per
year to identify children needing vac-
cinations and to have them vaccinated.
Similar projects are underway in El
Salvador and Honduras.

Nutrition-related activities focus
on development of growth-monitoring
programs that complement ORT and
immunization activities. The PL 480
Title II program provides about $10
million per year in food assistance for
maternal and child health, food for work,
school feeding, emergency feeding, and
aid to displaced persons.

Population Growth. Access to fam-
ily planning services is key to reducing
the region's rapid population growth,
which has exacerbated the drain on

available resources. The extremely high
regional annual population growth of
about 2.8% means that annual produc-
tion increases of that magnitude are
needed just to prevent current living
standards from declining. Although the
rate has been brought down from more
than 3% a decade ago, the present rate
of 2.8% is so high that its impact will be
felt for decades in terms of huge
numbers of new entrants to the labor
force, a continuing negative factor in per
capita income growth, and large
numbers of people for whom education
and many other social services will have
to be provided. In some areas of Central
America, the huge investments being
undertaken in such projects as the
development of urban infrastructure will
cover only the projected growth in
population and will not reduce the high
percentage of the urban population that
does not have adequate access to water
and sanitation.

The Central American governments
have recognized that population and
development policies are mutually rein-
forcing, and steps have been taken to
address this serious problem. AID's
main role has been technology transfer,
with 80% of AID assistance going to
nongovernmental organizations in sup-
port of Central American efforts to
implement their own plans. Major sup-
port is being provided for contraceptive

pril 1987

WESTERN HEMISPHERE

commercial sales programs and for
improving information available to the
population. We expect a 50% increase in
the use of family planning services by
1990.

Housing, Water, Sewerage, and
Other Infrastructure. At present, AID
is financing more than 50 separate
activities related to housing; water and
sewerage systems; and other infrastruc-
ture, such as roads, bridges, irrigation
projects, and energy. Other donors,
including the Inter-American Develop-
ment Bank and the World Bank, also
have been active.

Because of depressed economic con-
ditions and tight government budgets,
expansion of housing and infrastructure
construction has been slow. Available
data indicate that access to water and
sewerage is expanding faster than
overall population growth but only
modestly so. As economic conditions
improve, resources available for these
activities will expand.

Security Developments

The NBCCA concluded that indigenous
Central American problems "have been
exploited by hostile outside forces. ..."
The Commission recommended more
security assistance for El Salvador, con-
tingent on sufficient progress in human
rights, free elections, and political
reforms. It also urged greater predict-
ability of U.S. support through multiyear
funding of military aid to the Central
American region. U.S. policy is to signal
solid U.S. commitment to the Central
American democracies— through security
assistance, training, and exercises-
while promoting the professionalization
of each country's armed forces. Soviet,
Cuban, and other Soviet-bloc assistance
to the Sandinistas continues unabated.
In the face of externally supported insur-
gent movements and the increasing
Nicaraguan military threat, the United
States assists the Central American
democracies to provide the protective
security shield which makes development
possible.

Progress to Date. Remarkable prog-
ress has been made toward the basic
objective of improving the regional
security environment through U.S.
assistance in strengthening the defense
capabilities of the region's democracies.
This effort has promoted the profes-
sionalization and effectiveness of each
country's armed forces to enable them to
better combat security threats, e.g.,

insurgency and the Nicaraguan military
challenge. Central American militaries
have used U.S. assistance to improve
organization, training, and equipment.
Increased battlefield success and
reduced guerrilla strength, particularly
in El Salvador, have marked these
efforts. They have been accompanied by
improved human rights performance
(see Appendix E.)

At the same time, however, the
Nicaraguan military threat has increased
due to an upgraded military hardware
capability and the growing size of their
armed forces, which reached 75,000
active duty personnel in 1986. Soviet,
Cuban, and other Soviet-bloc military
assistance to the Sandinistas continues
unabated, reaching a peak level of
23,000 metric tons of equipment in 1986.

Although the U.S. -supported
Nicaraguan democratic resistance has
increasingly forced the Sandinistas to
pay more attention to internal condi-
tions, the Sandinistas continue to sup-
port subversion in the region and to
offer training, logistical, and command
and control facilities to the Marxist guer-
rillas in neighboring countries.

In the last 2 years, U.S. security
assistance has been constrained by
budgetary restrictions and the
Adminstration's aid request levels to
Congress have not been fully funded.

Prospects for Meeting Objectives
Through 1989. The crisis in the region is
a long-term problem— in the absence of a
comprehensive, simultaneous, and
verifiable implementation of the 21
objectives of the Contadora Document of
Objectives of September 1983— will
require a coordinated long-term
response and commitment of resources.
Soviet-bloc military assistance to
Nicaragua alone exceeds U.S. military
assistance to all the Central American
democracies. Consolidation of the San-
dinista regime and Nicaragua's ability to
destabilize the region continue to
frustrate peaceful negotiations. That
country's military capability is improv-
ing. Soviet, Cuban, and other Soviet-bloc
military assistance to the Sandinistas
and various insurgent groups in Central
America is likely to increase.

Meeting the security objectives will
require that the United States
simultaneously continue to:

• Strengthen the security shield of
each of the Central American
democracies to ensure continued prog-
ress in democratic development,
economic growth, and national recon-
ciliation; and

• Support efforts to achieve a
democratic outcome of the conflict in
Nicaragua and a comprehensive,
verifiable implementation of the 21-poi
Contadora Document of Objectives.

Although substantial progress has
been made toward the realization of th
security objectives in the region, there
a grave risk of compromising the succe
of the effort if there is a reduction in
funding for the security shield to the
region's democracies or for the
democratic resistance.

III. The Need for

Full Funding of NBCCA

Recommendations

■

SUMMARY OF ACCOMPLISHMEN'

The CAI was based on certain econom
and social recommendations contained
the NBCCA report. Much has been
accomplished in the past 3 years.

• Democratically elected govern-
ments, dedicated to human rights
improvements, are found in Belize,
Costa Rica, El Salvador, Guatemala, a
Honduras; Marxist-Leninist Nicaragua
stands in stark contrast in this trend.

• Politically motivated violence in
Salvador and Guatemala has been
reduced significantly.

• A fundamental change has
occurred in the attitudes of the militar
toward human rights in El Salvador ai
Guatemala.

• The severe economic slide so evi
dent in 1980-81 has been arrested and
recovery is underway in every country
the region.

• Capital flight from the region hs
been reduced, and private investment
and private capital have begun to retui

• Nontraditional exports (believed
be the economic key to Central
America's long-term future) are expan
ing in every country and dramatically i
Costa Rica.

• Infant mortality rates are drop-
ping more rapidly than targeted.

• Primary school enrollments are
increasing.

• Programs for improvements in t
administration of justice are underway
throughout the region.

• 3,497 "peace scholars" already
have come to the United States under
the Central American Peace Scholarsh
program.

Department of State Bullei

WESTERN HEMISPHERE

Central Americans have begun to
blish the proposed Central American
velopment Organization.

In its report, the NBCCA indicated
at the United States should furnish
0-$12 billion in resources and
arantees to Central America from
84 to 1990. The CAI proposed a more
)dest beginning— a 5-year effort total-
some $8.4 billion, of which $2 billion
is to be in guarantees and the balance
appropriated funds from Economic
ipport Funds (ESF), development
sistance, PL 480, Peace Corps, USIA,
d the refugee program. 3 Excluding the
[ 1984 supplemental request of $400
lllion, this averages out to an annual
IjTuirement of $1.2 billion in appro-
bated funds and $400 million in
jarantees for the 5-year period.
I Actual funding against these targets
I of the end of FY 1986 totaled $2,155
llion in appropriated funds and $377
■jllion in guarantees (see Table III,
172).

I Economic assistance levels for Cen-
^il America have been substantial over
\i past 3 years, but they have been
Jninishing and falling short of the
j-els recommended by the NBCCA and
ithe CAI, particularly with respect to
1 propriated funds. In terms of the
• ginal assistance targets, the shortfall
i appropriated funds will be approx-
imately $760 million by the end of FY
r87, assuming passage of the full FY

4 87 supplemental. 4 Any reduction in
I? FY 1987 supplemental level will, of
lurse, further increase the shortfall.

The NBCCA made no specific dollar-
1 r el recommendation for military

5 5istance. In general, it did recommend
1 ire aid at a level that would ade-

i ately promote the strengthening and
j Dfessionalization of each democracy's
s ned forces. An effective security
I teld against violence and intimidation
Id to be built for Central American
( mocracies in order to create an envi-
Inment in which political, economic,
id social progress could succeed. The
led for sustained, sufficient military aid
I* regional armed forces and the
i caraguan democratic resistance
Jl mains.

.) the Goals Need Modification?

JDSt of the recommendations contained
j the NBCCA report remain sound. It is
' preasingly evident, however, that not
I of the objectives originally set forth
' the NBCCA's report can be fully
ihieved within the 5-year timeframe of
leCAI.

CHART III

U.S. Fruit and Vegetable Imports from Central America, 1980-86 3

$ millions
70 -r

60 - ■

30 --

20 -•

1980

1981

1982

1983

1984

1985

1986

Excludes bananas.

We believe the basic goals of the
CAI— strengthening democratic institu-
tions, economic stabilization, economic
transformation, and spreading the
benefits of growth more broadly— are
consistent with the NBCCA recommen-
dations and remain a sound and appro-
priate focus for U.S. assistance to Cen-
tral America.

It is clear that several of the major
targets under these goals will require
additional time and all of the resources
recommended by the NBCCA.

Targets under strengthening
democratic institutions were never
quantified, and efforts in this area will
need to continue well into the 1990s.
Specifically, over the next several years,
we would hope to greatly expand activ-
ities in such areas as the administration

of justice, leadership training, improve-
ment of electoral processes and support-
ing systems, improvement of local
governments, legislative processes,
trade union development, and creating a
role for women in development.

While economic stabilization has
been achieved in varying degrees
throughout the region, it is quite fragile
and could be easily reversed by any
significant economic, political, or
military setback. Another 3-5 years will
be needed to solidify the economic
stabilization process and to ensure that
the Central American economies are
securely on the road to recovery.

The prolonged economic stabilization
process, among other factors, has
affected the speed at which the all-
important economic transformation has

pril 1987

WESTERN HEMISPHERE

TABLE III

Funding of the Central American Initiative, FY 1984/85-1987

($ thousands)

1984/85

1986 TOTAL

1987
Supplemental

1987

TOTAL

Appropriated Funds

ESF

826,993

457,812 1,284,805

415,000

200,000

1 ,899,805

Development

Assistance

299,933

254,952 554,885

231,062

100,000"

885,947

PL 480

Title I

130,100

89,500 219,600

89,000

308,600

Title ll"

11,591

19,671 31,262

18,181

49,443

Subtotal

1,268,617°

821,935 2,090,552

753,243

300,000 3,143,795

Peace Corps

18,200

10,600 28,800

10,500

39,300

USIA

7,800

19,500 27,300

15,900

43,200

Narcotics"

548

326 874

1,255

2,129

OPIC

4,544

3,330 7,874

3,300

11,174

Subtotal'

31,092

33,756 64,848

30,955

95,803

Total appropriated

1 ,299,709

855,691 2,155,400

784,198

300,000 3,239,598

Guarantees

Trade Credit Insurance

Program

176,600 176,600

200,000

376,600

Housing

5,000

40,469 45,469

2,600

48,069

Commodity Credit

Corporation

59,700

34,000 93,700

48,000'

141,700

OPIC

10,103

33,050 43,153

33,000*

76,153

Eximbank

9,943

7,957 17,900

8,500'

26,400

Subtotal

84,746

292,076 376,822

292,100

668,922

TOTAL

1,384,455 1

,147,767 2,532,222

1,076,298

300,000 3,908,520

3 FY 1987 supplemental includes $100 mi

lion for El Salvador earthquake reconstruction.

" Includes Section 416 commodities $5 million in FY 1986 and $7.7 million in FY 1987.

c For FY 1984, includes su

pplemental plus

> $25 million of PL 480 reallocations only.

For further information on narcotics program see Appendix G.

c Excludes non-CAl related program costs

Projected based on FY 1986 allocations.

been simultaneously taking place.
Stabilization concerns have directed
attention and resources away from the
structural reforms and programs needed
if Central America is to attain the type
of self-sustaining economic growth
essential to equity and the preservation
of democracy and human dignity. It now
is obvious that transformation of these
economies— changing the base from
traditional exports of bananas, coffee,
sugar, cotton, and meat, to non-
traditional agricultural products and
manufactures— will require significantly
more time than envisioned by the
NBCCA. Under optimistic projections, it
will be 1992 before Central America
again achieves a 5% growth rate— one
percentage point less than originally con-
templated in the NBCCA report and

only slightly more than two percentage
points above the annual increase in
population.

In terms of spreading the benefits
of growth more broadly, several specific
targets may be largely met by 1989 or
1990, e.g., reduction in infant mortality,
increased use of family planning serv-
ices, improved access to potable water,
and meeting the objectives under the
Central American scholarship program;
others will not. For example, the crea-
tion of 250,000 jobs per year must await
a fairly high and sustainable economic
growth rate. Other social benefit
targets— for example, primary school
enrollment growth and reduction in
primary school repeaters— were probably
overly optimistic within either the CAI's

5-year or the NBCCA's 7-year time-
frame. Accordingly, we have establishe I
more realistic targets in education for j
the region (including El Salvador) for
1990: 90% gross enrollment ratios; 709|
completion rates; and 9 years to produi j
a sixth-grade graduate. Finally, it will 1 J
a long and difficult effort to incorporat '
equitably the less advantaged into the l
new productive base which we are help 1 j
ing the Central Americans to build.

Fully Funding the Objectives

We intend to fund the CAI fully by
extending the period of execution of th
program by 3 years to 1992. The targe
growth rate is being revised to slightly
more than 5%. The extension will
increase the original budget by approx
imately $500 million to a total of $6.9
billion in appropriated funds while
retaining the original $2 billion in
guarantees. This extension is response
to funding limitations under the budge
deficit reduction act and reflects the di
ficulties inherent in the implementatioi
by sovereign governments of essential
reforms. It is attuned to the political a
security realities of the region and the
external conditions of world markets a
investment attitudes. We consider this
extension of the CAI a practical
response to a changed situation.

A 3-year extension of the original
5-year timeframe will help to ensure
that:

• There is a solid trend in all coun
tries toward increased democratizatioi
and participation of the populace in th
electoral and governing processes;

• The Central American economie
are stabilized and well on the road to
recovery and are moving toward regai
ing or exceeding their precrisis rates c
growth;

• Essential structural reforms are
place or sufficiently initiated to permit
Central America to achieve and sustai;
positive per capita economic perform-
ance based on export-led growth; and

• Policies and other programs are
place to ensure broader participation i:
the benefits of these higher growth
rates.

Projected assistance levels also
reflect a shift in emphasis, beginning i
FY 1989, away from stabilization and
toward structural transformation and
equity concerns. Economic Support
Funds will continue to play a major rol
in this transition by helping to fund so
of the larger projects that are aimed a
increasing and diversifying both produ
tion and exports through improved inf
structure, technology, and/or equipmei

Department of State Bulle

WESTERN HEMISPHERE

3F-generated local currencies will be
ired with U.S. and other donor
sistance to support programs designed
broaden access to basic social services
id promote equity. U.S. aid will be tied
sector-wide reforms designed to put
licy, institutional, and financial
ameworks in place, to ensure that
owth is both quantitatively and
lalitatively appropriate and
stainable.

We hope that the year 1992
i presents a reasonable date by which
ie CAI's major economic objective—
icovery— will be achieved and the need
:r economic supporting assistance will
I significantly less. Central America's
i'velopment is a long-term proposition,
Iwever, and we intend to develop a
llow-on program for the years beyond
)92. This will be needed especially for
lime of the newer initiatives under
;mocratization, structural reform, and
•ograms to ensure broader participa-
m and human resource development.

Table IV (p. 74) summarizes by
ajor goal area and major funding
: >urce: the levels of financial assistance
ider the CAI already committed or pro-
cammed through FY 1987; the planned
Y 1988 request; and estimated funding
quirements beyond FY 1988 and
rough FY 1992 to fund fully and com-
ete as many of the NBCCA recommen-
itions as possible. The actual outlays in
ich country may be less than author-
ed if a country fails to implement
gnificant economic reforms.

rogram Summary

he program we envision under the
rtended timeframe will not vary
gnificantly from that currently under-
•ay. The pace of accomplishment over
ie next 5 years, however, will vary. The
blowing provides a general description
f program content and focus.

Democratization. The continuation
nd strengthening of democratically
lected governments, democratic proc-
sses, and civilian institutions in the
egion are critical to overall success in
chieving the recommendations of the
JBCCA report and the goals of the CAI.
^he elected civilian governments of the
egion must be able to govern effectively
ind honestly, to protect and extend the
luman and legal rights of their citizens,
ind to organize alternative programs
ind choose among them peacefully.

U.S. aid to democratization must
jrow in size and sophistication as we and
the Central Americans confront the fact

that democracy is an evolutionary proc-
ess involving a range of civic institu-
tions, cultural attitudes, and socio-
political resources. AID programs will
continue to focus on facilitating the elec-
tion process itself, expanding citizen par-
ticipation and leadership training,
strengthening the professional
capabilities of legislatures, and pro-
moting the freedom and competency of
the press. AID also is working to
upgrade the competency and independ-
ence of the judiciary and the investi-
gative organs of government so that
they may more effectively serve the
populace and protect human rights.

The Central American Peace
Scholarship program, aimed at providing
10,000 or more scholarships, will be con-
tinued. This highly successful effort aims
to not only acquaint trainees with the
values and institutions of democracy,
but— because it is targeted at the less
advantaged— to increase their ability to
compete in the employment market-
place. We see the program as an invalu-
able tool to facilitate our efforts to
redirect Central American agricultural
and manufacturing production toward
the highly competitive world market. A
highly trained workforce is essential if
Central America is to succeed in such a
competitive environment.

In addition, AID and USIA should
develop programs to improve the profes-
sional capabilities of Central American
civilian officials, for example, through
courses that complement existing U.S.
Government training programs by help-
ing Central American civilian officials
relate U.S. -oriented course matter to
Central American requirements.

Stabilization. We envision that
balance-of-payments assistance to El
Salvador and Honduras through ESF
cash transfers will be required
throughout the period at gradually
declining levels. ESF funding for
Panama and Belize should not be
required after 1989 or for Costa Rica
and Guatemala after 1991. This assumes
that we will be successful in convincing
the nations of the region that our com-
mitment to economic and social reform
equals that of our concern for
democratization and our opposition to
the spread of Marxism. Otherwise, there
will be a danger of creating economic
dependency by continuing high ESF
levels without appropriate structural
adjustment.

Economic Transformation. As the

requirement of ESF for balance-of-
payments financing declines, we intend

to shift the focus of ESF funding and its
associated policy dialogue to the
macroeconomic and sectoral policy and
institutional impediments to rapid and
sustained growth. A combination of
ESF, development assistance, and Food
for Peace resources will be used to build
on programs currently underway to
strengthen and stimulate the private sec-
tor as the primary force behind economic
recovery, employment, and wider partic-
ipation in growth and development.

Particular attention will be given to
the question of economic equity, not
through government largesse but
through programs that permit the less
advantaged to play a larger role in pro-
duction and in the marketplace. We will
continue to examine ways in which small
farmers can be integrated into the effort
to produce nontraditional agricultural
exports as independent producers and
small- and medium-sized industries can
expand their sales beyond narrow
domestic markets.

The NBCCA report suggested that
infrastructure needed for renewed
growth would require external financing.
We had hoped that the multilateral
development banks and other donors
would play the major role in meeting this
need. Their response has been less than
projected. We will reexamine the
infrastructure needs of the region, par-
ticularly in Belize and in the highlands of
Guatemala and Honduras, to identify
where farm-to-market roads, rural elec-
trification, and other relatively small-
scale activities could play a decisive role
in bringing small farmers into a diversi-
fying economy. We will also look at the
irrigation requirements of nontraditional
crops, regional processing and shipping
facilities, and industrial parks. Efforts
will have to be made to restore the
essential economic infrastructure in El
Salvador damaged by insurgents and by
a major earthquake.

Spreading the Benefits of
Economic Growth. The NBCCA
recognized that economic growth alone
does not ensure greater equity for low-
income groups. Disparities in income and
economic opportunity— particularly in
Guatemala, El Salvador, and
Honduras— are wide and in some cases
growing. They must be reduced if
economic and political gains are to be
preserved. A shift to higher value, non-
traditional agricultural crops and
increased industrial exports will mean
little if workers lack basic education and
if skills training is not available.

Availability of agricultural credit has
little impact on small farmers who do

April 1987

WESTERN HEMISPHERE

TABLE IV

Central American Initiative Financial Plan, FY 1984/85-1992

($ millions)

1984/85° 1986"

1987 1984/87

Subtotal

1989 1990

1988/92
Subtotal

Economic Stabilization

ESF

USIA

Subtotal

TOTAL

115

106

285

ESF

707

417

538

1,662

415

286

230

130

1,131

2,793

Development Assistance

PL 480 c

130

321

230

551

Trade Credit Insurance Program

(0)

(177)

(200)

(377)

Commodity Credit Corporation

(60)

(34)

(48)

(142)

Subtotal

858

520

643

2,020

495

336

275

160

1,361

3,381

Structural Change

ESF

150

160

100

537

631

116

113

320

386

706

PL 480

151

OPIC Financing

OPIC Guarantees

(10)

(33)

(76)

Eximbank Guarantees

(10)

(8)

(27)

Subtotal

192

125

108

425

143

278

282

208

178

1,089

1,514

Spreading Benefits

ESF

103

185

288

160

128

219

507

120

140

120

640

1,147

PL 480

Narcotics

Peace Corps

Housing Guarantee

(5)

(40)

(3)

(48)

Subtotal

215

181

292

688

170

180

201

197

177

925

1,613

Democracy

391

Appropriated
Guarantees"

Grand Total

1,300

856

1,084

3,240

856

848

817

629

510

3,660

292

669

301

300

280

225

1,331

1,385 1,148 1,376 3,909 1,157 1,148 1,097

854

735 4,991 8,900

Includes FY 1984 supplemental of $370 million plus $25 million of FY 1984 PL 480 reallocations.
b Total includes $300 million requested in FY 1987 supplemental, $100 million of which is destined for El
Salvador earthquake recovery.

c Includes Section 416 commodities for FY 1986 and FY 1987. Outyear levels for Section 416 are depen-
dent on regional allocations and future legislative actions.

Out-year total estimates for guarantees are projected, based on experience to date.

Department of State Bulletin

WESTERN HEMISPHERE

t qualify for it because they do not
m their farms or have secure and
uitable tenure arrangements. Even in
eas where the economic and social
! ects are less direct and longer term—
ch as child survival, nutrition, family
inning, and better housing— early
ogress is essential if the United States
d the elected governments of the
gion are to demonstrate convincingly
at democracy is preferable to
talitarian and Marxist regimes.

As economic stabilization is
hieved, we will expand our programs
the equity area through a mixture of
■velopment assistance, ESF, Food for
ace, local currency generations, and
using guarantees. These programs will
i concentrated in Guatemala, El
.lvador, and Honduras and will require
adually diminishing U.S. support.

inding Alternatives

is section describes the broad
acroeconomic implications of three
nding alternatives that were
nsidered.

Option 1: Funding Stretched Out to

Y 1992. (This is the chosen option.) We
oject that stretching out the program
rough FY 1992— with total appro-
bated funding of $6.9 billion— would
If ill its main economic, social, and
litical objectives. Economic growth in
'92, at 5.2%, would be lower than the
•iginal target but would be sustainable
; that level in subsequent years with
wer levels of assistance. Equally
iportant, the social and democratiza-
>n goals of the program would be more
■icurely in place.

Achievement of these results
jsumes continued economic policy
?form by Central American govern-
ents. Without such action, we would
■oject a 1992 growth rate of only 3.2%
ven with full funding. However, we
ould continue to condition our aid to
ch reforms, so actual funding levels
'ould be adjusted downward if reforms
/ere not forthcoming.

Option 2: Full Funding by 1990.

Vere full funding of the CAI to occur by
990, we project, under favorable
ssumptions, that growth by 1990 would
early reach the original growth target
Id.8% v. the targeted 6%). This would
lequire about $1 billion more in appro-
priations during FY 1988-90 than the
iunding profile of Option 1. It was
•ejected for two reasons.

• While achieving the growth target
for that year, the growth would be arti-
ficially induced and would not be self-
sustaining, so growth rates after 1990
would fall sharply, causing backsliding
on the progress made through 1990; and

• It would increase the risk that
Central American governments would
fail to undertake assumed policy actions,
thereby reducing the effectiveness of the
assistance and the prospects for sus-
tained growth.

Without the policy actions, we pro-
ject a 1990 growth rate of 3.1%— only
slightly higher than population growth.

Option 3: Achieving 6% Growth by
1990. Under the most favorable assump-
tions, slightly more than $7.2 billion
would be required to achieve 6% growth
by 1990. We rejected this option
because, as indicated in the discussion of
Option 2, this growth would not be self-
sustaining after the end of large-scale
aid.

As in the previous scenarios,
achievement of the goal would require
continued policy action by Central
American governments. If such policy
actions were not forthcoming, the addi-
tional cost of achieving the 6% growth
by 1990 would rise dramatically to $11.2

Status of Other NBCCA
Recommendations

The CAI, as proposed and carried out
thus far, embraces most, but not all, of
the NBCCA recommendations. As we
have gained experience with implement-
ing the program, it has become clear
that some of the specific NBCCA recom-
mendations are no longer appropriate.
Examples are noted below.

Organize a Meeting of Central
American and U.S. Leaders. The

United States did not initiate such a
meeting for a variety of reasons. An
annual private sector-sponsored con-
ference in Miami, however, brings
together the political and economic
leaders of Central America, the Carib-
bean, and the United States. In 1986,
President Cerezo of Guatemala called a
meeting of all Central American leaders
in Esquipulas, Guatemala, at which
regional political and economic issues
were discussed. Former President
Monge of Costa Rica began discussions
on trade imbalances and ways to
reinvigorate the Central American Com-
mon Market. Similar meetings are likely
to take place over the next few years,

especially if a Central American
Development Organization becomes a
reality (for details on CADO, see
Appendix F).

Revitalization of the Central
American Common Market (CACM).

Subsequent to the NBCCA report, an
AID-financed study of the CACM recom-
mended against trying to revitalize the
CACM through emergency financial
credits, as suggested in the NBCCA
report. Emergency credits would not
have stimulated trade on a sustained
basis in light of the disequilibrium of
exchange rates in the region. We are
focusing on the exchange rate problem
through our bilateral policy dialogues.
Because future economic growth in the
region will come predominantly from
exports to extraregional markets, our
primary concern is to ensure that the
region's currencies are in tune with the
world currency regime. Although the
U.S. Government has deferred taking
action, there have been some potentially
hopeful signs of interest by the Central
Americans in reviving the CACM. The
most noteworthy is agreement by the
region's economic ministers to introduce
a new instrument for the CACM that
may help increase intraregional trade
without requiring the use of hard
currencies.

Establish a Venture Capital Cor-
poration. This recommendation is still
being studied. In the meantime, at least
three countries in the region are in
various stages of establishing private
investment corporations. One is already
operating in Costa Rica, and similar
institutions are under consideration in
Honduras and El Salvador. A study of
the feasibility of establishing a regional
venture capital corporation has been
initiated, along with a broader assess-
ment of medium- and long-term credit,
financial instruments, and policies
needed to attract foreign investment. If
the study results of the regional venture
capital corporation study are favorable,
the earliest date at which AID could ini-
tiate a project of this kind is FY 1988.

The U.S. Government Should Join
the Central American Bank for
Economic Integration (CABEI). The

United States has a longstanding policy
of not joining or taking equity positions
in subregional banks. While the United
States did not join CABEI, we are
assisting it through a $50-million
grant/loan and related technical
assistance project. In the 18 months that
this project has been in operation, the

April 1987

WESTERN HEMISPHERE

U.S. contribution has helped bring about
the payment of $38 million in arrearages
and $40 million in new capital from
CABEI member countries. CABEI also
has secured commercial refinancing in
the amount of $170 million. The project
also calls upon CABEI to raise an addi-
tional $50 million in capital from extra-
regional sources by August 31, 1987.
CABEI's efforts toward meeting this
condition are proceeding well, and as
much as $100 million might be raised in
paid-in capital and/or concessionary
loans. AID expects to sign an agreement
this fiscal year for $15 million in housing
guarantees and $4 million in grant
assistance to support a Housing and
Urban Development program for the
region.

Appropriate Funds for Central
America on a Multiyear Basis.

Although this was initially judged to be
politically infeasible, it remains most
desirable. Congress has authorized
appropriations for nonmilitary assistance
to Central America through FY 1989
(Section 416 of the Foreign Assistance
Act) and has made funds appropriated in
the FY 1987 Foreign Assistance Appro-
priation Act available for obligation over
a 2-year period. These measures demon-
strate a willingness by Congress to
address the issues considered by the
NBCCA in the longer term.

IV. Agricultural Commodity
Assistance and Programs

The Congress, in Section 205(2) of the
Foreign Assistance Act, stated that:

... the report requested by paragraph (1)
shall include an analysis and recommenda-
tions, prepared in consultation with the
Secretary of Agriculture, on how more effec-
tive use can be made of agricultural com-
modities from the United States in alleviating
hunger in Central America and contributing
to the economic development of the Central
American democracies.

Over the past 3 years, the United
States has provided increasing amounts
of food commodities to Central America
under various sections of PL 480 as well
as under the authority of Section 416 of
the 1949 Agriculture Act. The major
commodities that we provide to Central
America are wheat, corn, rice, vegetable
oil, dairy products, tallow, and breeding
livestock. Actual tonnages provided have
increased, but because of declining world
prices for many of these commodities,

the total dollar equivalents may not
show increases (see Table V).

While the global funding levels for
the PL 480 program were cut in FY
1986 and FY 1987 due to budgetary con-
straints, these reductions have not been
as severe as in the case of ESF and
development assistance. Therefore, food
aid is assuming a relatively larger role in
our total resource flows.

The U.S. Government will continue
to use its food aid authorities to support
the CAI. Food aid provided under the
concessional loan authority of Title I of
the Agricultural Trade Development and
Assistance Act of 1954 (PL 480) will con-
tinue to be the primary means of
assistance in this area. In addition to the
ongoing use of this authority to help
meet the agricultural commodity import
needs of these countries with minimal
foreign exchange use, recent actions by
Congress offer a newer benefit of this
program.

A new Section 108 in Title I
authorizes a program that will promote
the local private sector as the means to
economic growth. This new section
allows the United States to sell
agricultural commodities, up to the
authorized levels, for local currencies.
These U.S. -owned currencies are lent to
financial intermediaries, which then
make loans to the indigenous private sec-
tor based on commercial practices. This
new effort will allow more effective use
of U.S. agricultural commodities to pro-
mote private sector economic growth in
the region.

A second new program, Food for
Progress, also may be effective in the
region. This program, which is author-
ized by Congress through either PL 480
or a newer food aid authority (the Sec-
tion 416 Overseas Donations Program),
provides for multiyear donations of U.S.
agricultural commodities to support
countries "that have made commitments
to introduce or expand free enterprise
elements in their agricultural econ-
omies. ..." The multiyear nature of this
program will enhance its effectiveness.

Section 416, which makes use of
agricultural commodities owned by the
Department of Agriculture's (USDA)
Commodity Credit Corporation, also has
recently helped countries in the region
affected by the required changes in U.S.
sugar quota arrangements. These pro-
grams have allowed the recipient
governments to sell the U.S. com-
modities locally, thereby creating funds
to support development activities.

USDA's Office of International
Cooperation and Development (OICD), in
cooperation with AID, has successfully

TABLE V

PL 480 and Section 416 Assistance
for Central America, FY 1984-87°

1984 1985 1986 1987 1984-8?

(supple- (actual) (actual) (est.) (est.)
mental)

Title l/lll

Title II

Section
416

TOTAL

25.0

105.1
11.6

89.5
14.6

89.0
10.5

0.0 5.0 7.7
116.7 109.1 107.2

308.I
36/

12.
358.

' Excludes World Food Program assistance.

completed many programs to alleviate
hunger and help Central Americans
achieve economic development through
scientific and technical exchanges,
technical assistance, training activities,
and agribusiness promotion to facilitate
trade, investment, and employment
generation.

USDA's Animal and Plant Health
Inspection Service currently administer
several important long-term programs
with Costa Rica and other Central
American countries to suppress the
Mediterranean fruit fly, to eradicate
cattle screwworm, and to conduct
phytosanitary preclearance programs f(
fresh fruits and vegetables.

OICD's Private Sector Relations
Division has successfully channeled
development efforts through agricultur;
marketing workshops for the region,
providing a forum not only for practical
marketing information dissemination bi
also for establishing and strengthening
business contacts and trade with the
U.S. private sector.

OICD's Scientific and Technical
Cooperation Division and International
Research Division are involved in pro-
grams that were designed for mutual
benefit to the agricultural sectors of bot
the United States and the cooperating
country. Collaborative research efforts
are underway with Costa Rica to identii
and evaluate fruit flies, study the prev-
alence of blue tongue virus in livestock,
and determine the effectiveness of
pheromone bait hives in attracting and
capturing Africanized bees.

These activities are providing better
and more efficient use of agricultural
assistance to support the CAI.

In addition, under PL 480 Title I
agreements, several Central American
democracies are undertaking self-help
activities designed to contribute to
economic development. Costa Rica is
pursuing measures intended to stabilize

Department of State Bullet

WESTERN HEMISPHERE

economy and reduce government
[get deficits, including more rational
{cultural pricing policies; expansion of
in storage, handling, and marketing
terns; reduction of postharvest losses;
improvements in administrative and
rational efficiency in supporting
yernment agencies.
The Government of El Salvador is
cntinuing efforts to improve production
fcentives offered to small farmers and
Invide financial support for mainten-
I:e of agricultural storage facilities and
pier rural support activities, such as
Isic community services, rural employ-
nnt generation, rural potable water
futilities, and supplementary feeding
p>grams. In Guatemala, efforts empha-
ae increased use of the private sector
iidistribution of Title I commodities and
siport of agricultural sector develop-
l nts. In Honduras, the PL 480 Title I
a-eements support activities in animal
al plant health, and in agricultural
eication. All the countries in the region
a' either currently implementing or are
fcthe process of concluding agreements
per the Section 416 programs, several
c which are designed to compensate for
i ■ reduction in the sugar quota to the
J don.

In El Salvador, Guatemala, and Hon-
c "as, PL 480 Title II commodities sup-
| -t maternal and child health, school
i ding, and food-for-work programs
t it enhance nutritional levels among
I ;gnant and lactating women and their
l mg children. Based on a decade of
« iluating findings concerning the
( sign and implementation of Title II
] )grams, AID has developed and sent
1 private and voluntary organizations
i i to AID missions revised guidance
; d technical review procedures for PL
< 3 Title II Operational Program Plans.
' lese new procedures require the

■ lowing: precise statements of program
i jectives, detailed identification of

' rget populations, detailed descriptions

■ problems to be addressed, and iden-
ication of complementary inputs
jsides food) necessary for achieving
oject objectives. The Institute of
itrition for Central America and
inama will be providing technical
sistance to governments and private
id voluntary agencies to strengthen

• eir capacity to design, monitor, and

'aluate Title II programs.

The Administration is making major
: forts to use these programs more

fectively to alleviate hunger in Central
imerica and contribute to economic

!velopment. It is important to note
(veral constraints to the overall amount

of commodity assistance that can be pro-
vided to these countries. One is the limit
of their absorptive capacities; there is
only so much that the countries can
store, distribute, and use. Second, we
have to be careful that our assistance
does not result in disincentives for local
farmers whose livelihoods depend on
producing many of these items. Given
these considerations, however, we
believe that we are using commodity
assistance creatively and effectively in
Central America.

'Section 205(c) of the act appropriating
funds for military construction for the
Department of Defense for the fiscal year
(FY) ending September 30, 1987, and for
other purposes (as contained in section 101(k)

of the joint resolution on continuing appro-
priations for the FY 1987, and for other pur-
poses (House Joint Resolution 738; PL 99-500
as supplemented by PL 99-591)).

z Reports were made to the President by
the Secretary of State in 1985 and 1986 on
the status of implementing NBCCA recom-
mendations. These reports were transmitted
to the Congress (see "Sustaining a Consistent
Policy in Central America: One Year After
the National Bipartisan Commission Report,"
Special Report No. 124, April 1985, and "The
U.S. and Central America: Implementing the
National Bipartisan Commission Report,"
Special Report No. 148, August 1986).

3 For further information on Peace Corps
and refugee programs, see Appendix G.

"The FY 1987 supplemental requests $300
million in economic assistance for the four
Central American democracies, $100 million
of which is for earthquake recovery in El
Salvador.

APPENDIX A

NBCCA Recommendations

No.

Recommendation

Organize summit of U.S. and
Central American leaders.

2 Increase private sector

involvement.

3 Establish U.S. Government role

in renegotiation of official debt.

4 Encourage renegotiation of

private debt.

5 Increase economic aid in FY

1984.

6 More emphasis on housing and

infrastructure.

7 Provide trade credit guarantees.

8 Revitalize the Central American

Common Market.

9 The United States should join the

Central American Bank for
Economic Integration.

10 Should be a major increase in

other donor assistance to Cen-
tral America.

11 Authorize $8 billion in U.S.

assistance funds and
guarantees for 5 years, FY
1985-FY 1989.

12 Appropriate funds on a multi-

year basis.

13 Require host government

economic policy reforms.

14 Help create a Central American

Development Organization.

15 Use economic aid to promote

democracy;
15.1 Promote community organiza-
tions and democratic
institutions;

No. Recommendation

15.2 Expand USIA's binational

centers; and,

15.3 Increase USIA's exchange

programs.

16 Help Central Americans to

receive duty-free trade with
other countries.

17 Review U.S. nontariff barriers.

18 Promote exports from Central

America and development of
energy sources.

19 Establish a venture capital

corporation.

20 Expand Overseas Private Invest-

ment Corporation insurance
coverage.

21 Promote small businesses.

22 Accelerate agricultural

development;

22.1 Provide long-term credit for land

purchases by small farmers;

22.2 Study the holding of idle, poten-

tially productive land;

22.3 Improve title registration and the

defense of property rights of
farmers;

22.4 Provide short- and medium-term

credit for working capital
improvements and equipment;

22.5 Encourage pricing policies which

protect the interests of both
producers and consumers;

22.6 Encourage an equitable distribu-

tion of agricultural wealth,
including agrarian reform and
land-to-the-landless type of
program;

Mil 1987

WESTERN HEMISPHERE

No. Recommendation

22.7 Improve and expand rural infra-

structure, e.g., roads, storage
facilities, and rural
electrification;

22.8 Increase rural research and exten-

sion programs;

22.9 Halt deforestation and environ-

mental degradation; and

22.10 Increase support for cooperatives.

23 Increase emergency food aid.

24 Increase funding for training and

education programs;

24.1 The Peace Corps should expand

recruitment of teachers to serve
in a new literacy corps;

24.2 The Peace Corps should expand

recruitment of primary, second-
ary, and vocational teachers to
serve in a new Central
American teachers corps;

24.3 Expand secondary-level technical

and vocational education and
apprenticeship programs;

24.4 Increase support for education

programs in business and public
administration;

24.5 Expand the International Execu-

tive Service Corps;

24.6 Develop a program for 10,000

government-sponsored scholar-
ships;

24.7 Prepare and implement a plan to

strengthen universities; and

24.8 Subsidize translation, publication,

and distribution of books and
educational material.

25 Expand health and nutrition

programs;

25.1 Increase technical assistance for

health programs;

25.2 Eradicate vector-borne diseases,

e.g., malaria and dengue fever;

25.3 Expand oral rehydration and

immunization programs;

25.4 Train primary health care

workers; and

25.5 Encourage adequate public invest-

ment in primary health care and
in preventive and environmental
interventions.

26 Continue AID population and

family planning programs.

27 Strengthen judicial systems;

impose sanctions against death
squad members.

28 Support refugee programs.

29 Give more military aid to El

Salvador.

30 Authorize multiyear funding of

military aid to ensure
predictability.

No. Recommendation

31 Military aid to El Salvador should
be tied to periodic reports on
human rights, progress toward
free elections and elimination of
death squad activities, and other
political reforms.

Summary of Commission Report 1

OUTLINE

The report, which was dedicated to
Senator Henry Jackson and transmitted
to the President on January 10, 1984,
consisted of the following chapters:

Introduction and basic themes.
Placed crisis in larger hemispheric
context.

3. Provided historical perspective.

4. Examined prospects for economic and

political development; presented
recommendations.

5. Discussed social issues— health and

education particularly— and made
recommendations.

6. Explored security issues and recom-

mended U.S. action.

7. Looked at diplomatic aspects and

offered recommendations on pur-
suing negotiated settlements.

8. Conclusion.

—On security and diplomatic issues,
the report dealt with El Salvador, Hon-
duras, Nicaragua, Guatemala, and Costa
Rica. Panama and Belize were included
for discussion of development programs.

MAJOR THEMES SET FORTH
IN THE COMMISSION REPORT

—The crisis in Central America is
acute. Its roots are indigenous— in
poverty, injustice, and closed political
systems. But world economic recession
and Cuban-Soviet-Nicaraguan interven-
tion brought it to a head.

—The crisis will not wait. It must be
addressed at once and simultaneously in
all its aspects. Ultimate resolutions
depend on economic progress, social and
political reform. But insurgencies must
be checked if lasting progress is to be
made on these fronts.

—Indigenous reform, even indige-
nous revolution, is no threat to the
United States. But the intrusion of out-
side powers exploiting local grievances
for political and strategic advantage is a

serious threat. Objective of U.S. policy
should be to reduce Central American
conflicts to Central American
dimensions.

—United States has fundamental
interests at stake: Soviet-Cuban succes
and resulting collapse of Central
America would compel substantial
increase in our security burden or
redeployment of forces to detriment of
vital interests elsewhere.

—As a nation we have deep and
historic interest in the promotion and
preservation of democracy. Report con
eludes that pluralistic societies are wha
Central Americans want and are essen
tial to lasting solutions. In this case, ou
strategic interests and our ideals
coincide.

—Central Americans desperately
need our help, and we have a moral
obligation to provide it. The United
States and other nations can make a di
ference. But, in the end, solutions will
depend on the efforts of Central
Americans themselves.

—Although there is urgent need fo
action, no quick solutions can be
expected. The United States must mak
a long-term commitment and stick to a
coherent policy.

—That policy can and should be
bipartisan. Commission found wide con
sensus on principles and objectives.

POLITICAL AND ECONOMIC
DEVELOPMENT

—Central American economies gre
substantially during the 1960s and earl
1970s. But income distribution was
highly inequitable, except in Costa Ric;
and Panama.

—Trend toward more pluralistic
political systems in El Salvador,
Guatemala, and Nicaragua reversed in
early 1970s.

—World recession and rising politic
violence had catastrophic effect on
region's economies in late 1970s, early
1980s. All have declined dramatically. I
Salvador's gross domestic product is off
25% since 1978.

—Even with successful stabilization
programs and restored political stabilit;
per capita wealth in 1990 would only b€
three-quarters of what it was in 1980.

—There must be substantial increas
in outside assistance.

—Commission believes economic
development cannot be separated from
political and social reform. Objective
must be parallel development of

Department of State Bullet

WESTERN HEMISPHERE

jhralistic societies and strong
jpnomies with far more equitable
«tribution of wealth.
I —We propose a program of U.S.
distance designed to promote economic
fcwth, democratization, and greater
jpial equity.

I —We encourage the greatest pos-
We involvement of the U.S. private sec-
I- in the stabilization effort. Recom-
jj'nd the formation of an emergency
jpion committee of private sector per-
sialities to provide advice on new
■vate-public initiatives to spur growth
■d employment.

J'commendations: An Emergency
tabilization Program

—Leaders of the United States and
Intra] America should meet to initiate
Igomprehensive approach to economic
llvelopment of the region and rein-
itiation of the Central American Confi-
rm Market.

| —A $400-million supplemental in FY
B4, over and above the $477 million
Iw in the budget for the seven coun-
ty es. There is urgent need to stabilize
( momies now going downhill very fast.
I —Focus this assistance on labor-
a ensive infrastructure projects and
\l ising. Unemployment is a critical
j )blem— politically and economically.
I —Establish a program to provide
HS. Government guarantees for short-
■m trade credits. External credit has
( ed up. Without it economies cannot be
ii ictivated.

—Provide an emergency loan to the
M ntral American Common Market to
| 'mit the reactivation of this vital
< ionization. Lack of resources in the
■I irket to settle trade accounts among
I j countries has stalled it.

—U.S. Government should take an
I ive role in the efforts to resolve the
n ;ernal debt problems of Central
Mnerica and should encourage the coun-
t es that have not done so to seek
lliltilateral rescheduling.

—Also encourage commercial banks
■ renegotiate at the lowest possible
lerest rates.

]?commendations: Medium
id Long Term

—Commission estimates $24 billion
i net external exchange inflows needed
I 1990 to foster a growth rate of 3%
Br capita, returning these countries to
lerecession levels of per capita wealth,
pout half— $12 billion— is expected to
me from international institutions,

other donor countries and loans, and
investments from private sector sources.

—U.S. Government will have to pro-
vide as much as $12 billion if these
financing needs are to be met.

—We propose, in this context, a pro-
gram of $8 billion over next 5 fiscal
years (FY 1985-89) in U.S. Government
assistance. This would be divided very
roughly into about $6 billion in appro-
priated funds and about $2 billion in con-
tingent liabilities covering guarantees,
insurance, and the like.

—Compared with current projections
for FY 1985-89, these contributions
would constitute an increase of about
$2.8 billion in appropriated funds and
$0.7 billion in contingent liabilities over
the 5-year period.

—Urge that Congress authorize
multiyear funding of this program. Com-
mission believes firm, long-term commit-
ment is essential.

—To give form and structure to the
development effort, suggest establish-
ment of the Central American Develop-
ment Organization (CADO). Perhaps
one-quarter of U.S. aid could be
channeled through CADO.

—CADO would consist of the United
States and those countries of the seven
willing to commit themselves to internal
democracy and reform. Continued
membership would depend on demon-
strated progress toward those goals.
Adherence to regional security pact also
required.

—Nicaragua could participate by
meeting these conditions.

— CADO's principal body would be a
Development Council with tripartite,
ILO [International Labor Organization]-
style representation. Would assess pro-
gram and progress toward economic
growth, democratization, reform, and
preservation of human rights.

—Other democracies would be
invited to join.

Additional Recommendations

—Expanded assistance from the U.S.
Government for democratic institutions
and leadership training-neighborhood
groups, cooperatives, binational centers,
and visitor programs for leaders of labor
unions, local governments, and other
organizations.

—Require a firm commitment by the
Central Americans to economic policies,
including reforms in tax systems, to
encourage private enterprise and indi-
vidual initiative, to create favorable
investment climates, to curb corruption
where it exists, and to spur balanced
trade.

—Urge extension of duty-free trade
to Central America by other major
trading nations.

—Review nontariff barriers to
imports from Central America with a
view toward using whatever flexibility
that exists within the framework of
multilateral agreements to favor Central
American products.

—Establishment of the Central
American Development Corporation— a
privately owned venture-capital company
which could initially be financed by a
loan from the U.S. Government.

—Recommend that the United States
join the Central American Bank for
Economic Integration.

—Technical and financial support for
export promotion and a U.S. Govern-
ment review of nontariff barriers to Cen-
tral American imports.

—Expanded availability of insurance
guarantees for new investments from
the U.S. Government's Overseas Private
Investment Corporation.

—Increased focus in assistance pro-
grams on small business and accelerated
agricultural development— particularly in
production of food for domestic
consumption.

HEALTH AND EDUCATION

—Democracy and prosperity in the
region require accelerated human
development. Hunger, disease, and illit-
eracy sap a people's vitality and impede
the growth of viable democratic
institutions.

—Literacy rates are unacceptably
low in several countries (e.g., Guate-
mala, 45%; El Salvador, 63%; Honduras,
60%), handicapping education efforts
seriously.

—Widespread malnutrition also
handicaps education by sending physi-
cally and mentally underdeveloped
children to school.

—Goals should include a reduction of
malnutrition, elimination of illiteracy,
expanded education, health, and housing
opportunities.

—Initial efforts must be to increase
food assistance to Central America
through the PL 480 programs.

—Commission calls for formation,
under direction of the Peace Corps, of a
Literacy Corps and a Central American
Teachers Corps.

—To meet needs in higher education,
U.S. Government scholarships should be
raised to approximately 10,000 over 4-6
years, a level comparable to Cuban and
Soviet Union efforts.

oril 1987

WESTERN HEMISPHERE

—Educational reform can also be
encouraged in the areas of technical and
vocational education through the expan-
sion of the International Executive Serv-
ice Corps and through closer cooperation
with Central American universities to
improve the quality of education.

—Judicial systems in Central
America can be strengthened by pro-
viding resources for training judges,
judicial staff, and public prosecutors.

—Continuation and expansion of
existing programs for disease control
and eradication, as well as immunization
and oral rehydration.

—Training of primary health
workers, especially nurses, should be
expanded and the means developed to
integrate private and public financing of
health services.

—Assistance programs should target
the area's severe housing shortage.

—Training of public administrators
required to improve public service.

—U.S. Government should provide
more resources to meet critical problem
of refugees and displaced persons— more
than 1 million of them need help.

SECURITY ISSUES

—In El Salvador there are two
separate conflicts: (1) between those
seeking democratic reform and those
seeking to retain their privileges; (2)
between Marxist-Leninist guerrillas and
those who oppose Marxism-Leninism.

—In discussing the latter we identify
three general propositions about such
guerrilla movements:

(1) They depend on external sup-
port. Without it they are unlikely to
succeed.

(2) They develop their own momen-
tum which reform alone cannot stop.

(3) Victorious, they create
totalitarian regimes, even though they
have enlisted support of democratic
elements in order to project democratic,
reformist image.

—External support comes from
Soviet Union, Cuba, and now Nicaragua.
Cuba has developed into a leading
military power through Soviet
assistance. Since Sandinista victory,
Soviets have come around to support
Cuban strategy of armed road to power
in Central America.

—There are serious strategic impli-
cations for the United States in Soviet-
Cuban support for armed insurgency in
the region.

—Triumph of hostile forces there
could require us to devote large
resources to defend our southern
approaches.

—This could mean either substan-
tially increased defense burden for the
United States or redeployment of forces
to the detriment of our interests
elsewhere.

—Threat to our shipping lanes in the
Caribbean.

—Increased violence and dislocation
in the area from which we could not
isolate ourselves.

—Erosion of our power to influence
events worldwide as we are perceived as
unable to influence events close to home.

El Salvador

—The war is stalemated, a condition
to the ultimate advantage of the
guerrillas.

—U.S. military assistance is inade-
quate to permit modern, humane, and
successful counterinsurgency.

—Commission recommends that the
United States provide significantly
increased levels of military assistance for
greater mobility, more training, higher
force levels, and more equipment.

—Assistance is to be conditioned
through legislation on terminating death
squads, progress toward democracy, and
establishment of the rule of law.

—In Guatemala, such assistance
should only be provided if the same
terms are met.

—Increased military assistance also
needed for Honduras to build a credible
deterrent and to meet renewed efforts at
insurgency.

—Commission concludes that U.S.
security interests are importantly
engaged in Central America. Larger pro-
gram of military assistance needed, as
well as expanded support for economic
growth and social reform.

—Success will depend on an end to
massive violations of human rights and
the neutralization of external support for
the insurgencies.

THE SEARCH FOR PEACE

—A successful U.S. political strategy
in Central America requires resources to
promote economic growth; vigorous
efforts to advance democracy and
reform; other inducements and
penalties.

—General strategic objective of U.;.
diplomacy in Central America should b
to reduce the civil wars, national con-
flicts, and military preparations to Cen
tral American dimension.

—Specifically, we should seek to st
the war and killing in El Salvador.
Create conditions under which
Nicaragua becomes a peaceful and
democratic member of the Central
American community. And open the w
for democratic development in all
countries.

—Commission calls for negotiation
in El Salvador between guerrillas and
the government to be elected in March '
to establish conditions for later
legislative and municipal elections in
which all could participate: electoral
commission with FMLN/FDR [Fara-
bundo Marti National Liberation Fron'
Revolutionary Democratic Front]
representation, cease-fire, and end to ;
violence; international observation of
elections.

—Adequate economic and military
assistance from the United States can
help to achieve such a settlement.

—Commission believes military
stalemate works against rather than f(
a political settlement based on the
popular will.

—In Nicaragua, consolidation of a
Marxist-Leninst regime would create ;
permanent security threat. Nicaragua'
mainland location makes it a crucial
stepping-stone to promote armed insu
gency in Central America. Cuban per-
sonnel (2,000 military advisers and 6,C
civilian officials); several hundred Sov
East European, Libyan, and PLO [Pal
tine Liberation Organization] advisers
extensive arms deliveries (13,000 tons
1983) add an external dimension to tht
threat posed by Nicaragua to its
neighbors.

—What gives the current situation
its special urgency is the external thre
posed by the Sandinista regime in
Nicaragua; supported by Cuban militai
strength; backed by Soviet weapons,
guidance, and diplomacy; and integrati
into the Cuban network of intelligence
and subversion.

—Central American leaders believt
pluralistic political orders are essential
to long-term security.

—An alternative would be an
attempt at containment. But that woul
be threaten militarization of the
isthmus— the creation of garrison state
Democracy would wither. And the
United States could find itself as sur-
rogate policeman.

Department of State Bulls

WESTERN HEMISPHERE

—Commission proposes comprehen-
. e regional settlement based on:

'i (1) Respect for sovereignty and
i nintervention.

(2) Verifiable commitments to
inaggression and an end to all

i empts at subversion— covert or overt.

(3) Limitations on arms and sizes of
sned forces. Prohibition of foreign

f ces, bases, and advisers.
• (4) No military forces, bases, or
a/isers of non-Central American coun-
ts would be permitted.

(5) Commitment to internal
p ralism and free elections in all
cintries.

(6) Provision for verification of all
a'eements.

(7) Establishment of an intergovern-
i) nt council to meet regularly to review
c npliance.

(8) Adherence to the overall agree-
rtnt would be required for membership
i the Central American Development

< ganization.

—The United States would support
1 ; agreement and provide assistance
i d would commit itself to respect
] suits of elections within countries as
1 ig as principles of pluralism at home
; i restraint abroad are observed.

—Commission's proposal based on
i i amplifies 21 points of the Contadora
<oup.

—Commission fully endorses Con-
1 lora efforts.

—Finally, majority of Commission
( poses dismantling existing incentives
; i pressures for the regime in
] inagua to negotiate seriously.

—As for Cuba, Commission sees lit-
1 possibility of separating it from
! viet Union. But the United States
i )uld be prepared to negotiate seriously
i Huba were to show itself prepared for
f nuine coexistence, dropping support
i • insurgency in Central America and
] /olutionary violence elsewhere in the
'rid.

—As for Soviet Union, establishment
Soviet military base in Nicaragua is
t the major concern. Before that could
ve happened, the crisis would have
iched proportions not containable in
ntral American dimensions.

—There is little promise in negotiat-
r with the Soviet Union over Central
nerica. Soviets would seek to cast such
gotiations in terms of sphere of
luence, an unacceptable concept for
2 United States.

APPENDIX B

I 'From "The U.S. and Central America:
plementing the National Bipartisan Com-
ssion Report," Special Report No. 148,
igust 1986.

Economic Assistance to Central America, as Proposed in the CAM

($ millions)

Purpose

Supple-
mental
FY 1984

FY 1985

FY 1986-89

TOTAL

Stabilization

ESF

PL 480
Guarantees

272

541
103

470

1,644

2,457
128
470

Subtotal

297

1,114

1,644

3,055

Growth

ESF

789

879

Development Assistance
PL 480
Guarantees
Counterpart 2

(100)

90
(220)

327

410

1,240

(520)

422

410

1,330

(840)

Subtotal

118

477

3,286

3,881

Equity

Development Assistance

PL 480, II

Guarantees

Counterpart 2

Peace Corps

State, Refugees

(100)
2

196
17
40

(220)
18
15

1,096

160

(880)

1,361

200

(1,200)

114

Subtotal

168

506

2,381

3,055

Democracy

ESF
USIA

20
36

85
179

113
222

CADO

—

Subtotal

268

340

Operating Expenses

TOTAL 2

400

1,720

6,205

8,325

'Figures do not include incidental activities or programs such as narcotics and OPIC insurance; the total
used in the text of the paper is $8.4 million.

^Counterpart figures are local currency generations from ESF or PL 480 balance-of-payments financing
for AID-supported activities in the region. Since they are programmed for development purposes, they are
included in sector subtotals but not in the overall total.

APPENDIX C

Political Situation and Developments
in Individual Countries

Belize. Belize obtained its independence
in 1981. In the first postindependence
election in 1984 the opposition United
Democratic Party, led by Manuel
Esquivel, won control of the parliament.
In a peaceful transition of power,
Esquivel became prime minister.

Costa Rica. Costa Rica is recognized
as Central America's longest existing
democracy, dating back to the elections

of 1889 with only brief interruptions.
The latest presidential elections were
held in February 1986 and were honest
and open. Oscar Arias, a social
democrat, won the close election and
was inaugurated on May 8, 1986. A new
legislature also took office.

El Salvador. With U.S. support for
democratic pluralism, and despite guer-
rilla opposition, El Salvador held free
and open nationwide elections without
effective disruption in 1982, 1984, and
1985. Democratic institutions and habits
have gained steadily during these years,

\pril 1987

WESTERN HEMISPHERE

as is evidenced by the growing participa-
tion by opposition parties in El Salva-
dor's political life. Mid-level members of
two of the leftist parties that backed the
guerrillas in 1980, and whose cadres had
been in self-imposed exile, have begun to
return and have carried out political
activities without incident.

Guatemala. Democracy began its
return to Guatemala with the election of
a Constituent Assembly in July 1984,
following a generation of military rule
and political violence. The country held
open and highly competitive elections in
November and December 1985, which
international observers verified were
honest and orderly. Vinicio Cerezo, a
Christian Democrat, obtained a national
mandate from two-thirds of the elec-
torate in the presidential runoff election
and took office in January 1986.
Violence and poverty pose enormous
challenges to the Cerezo government. In
the spring of 1986, the new government
enacted comprehensive economic
reforms to stimulate the economy and
provide new job opportunities for the
country's 8 million people. Considerable
external assistance will be needed to
support the government's efforts to
foster institutional development and
economic growth at levels to sustain
Guatemala's ongoing democratization.

Honduras. The democratic trend
was strengthened in Honduras through
presidential and legislative elections in
1981 and 1985. The national presiden-
tial, legislative, and municipal elections
in November 1985 were orderly, open,
and enthusiastically celebrated. Presi-
dent Jose Azcona's inauguration in
January 1986 was the first transfer of
power in Honduras from one elected
civilian to another in 53 years. Due to
the large number of candidates, the elec-
tions were based on a system in which
the candidate with the largest number of
votes in the party with the largest
number of votes becomes president-
elect. While orderly, this somewhat con-
fusing system prompted the Honduran
Congress to enact an electoral reform
law in 1986, which seeks to regulate
party primaries and internal elections
and sets the stage for national elections
in 1989.

Nicaragua. In the years since the
NBCCA report, the Sandinista govern-
ment has moved in an opposite direction
from the Central American democra-
cies—against the trend demonstrated by
those countries and counter to the open,
pluralist system that the Sandinistas

originally promised their people and the
Organization of American States. In
1986, Nicaragua was less democratic,
more heavily armed, and more depend-
ent upon the Soviet bloc than ever
before. The government has increased
its repression of religious groups, the
press, and opposition political parties.
The Sandinista military threat and sup-
port for subversion, insurgency, and ter-
rorism impede the progress of
democracy in the rest of Central
America. Moreover, just as the Somoza
dictatorship ultimately sparked national
rebellion, the Sandinistas' betrayal of
the Nicaraguan people's desires is
breeding internal resistance. The San-
dinistas' oppression of the Nicaraguan
people and their hostility to their

democratic neighbors remain Central
America's most pressing security
problem.

Panama. In September 1985, less
than a year after his inauguration, Pre
dent Nicolas Barletta resigned under
pressure from the military, as well as
from party and cabinet leaders. His co
stitutional successor was First Vice
President Eric Arturo Delvalle. Panan
remains basically an open society, but
Barletta's resignation marked a setbac
to democratization. Although the
presidential election of 1984 remains
disputed, the legislative assembly elec-
tions, with a few notable exceptions,
were regarded as legitimate and
established a vociferous, if weak,
legislative opposition.

APPENDIX D

United States Information Agency

In support of the NBCCA's objectives of
strengthening democracy and improving
the quality and availability of educational
opportunities in Central America, USIA
has undertaken the following activities.

Scholarships. Since 1984, USIA has
greatly increased its academic exchanges
program and established a pilot program
for undergraduates known as the Cen-
tral American Program for Under-
graduate Scholarships (CAMPUS). In
1986, there were 580 academic
exchanges, of which 154 were CAMPUS.
USIA hopes to maintain this level of
exchanges, given ongoing funding and
authorization from Congress. A new,
million-dollar university partnership pro-
gram will begin in FY 1987. Another
new exchange program, designed to put
foreign professionals in contact with
their American counterparts, will begin
in 1987.

Central American Book Initiative.

In mid-1985, USIA instituted this pro-
gram to provide Spanish translations of
U.S. books to university libraries and
faculty, as well as to government leaders
and institutions in Central America.
More than 50,000 books have been
presented. USIA plans to continue the
program at reduced levels, devoting
special attention to the donation of
university texts in the humanities and
social sciences.

Professional Leadership
Exchanges. USIA programmed 150
International Visitors and 80 Voluntar
Visitors from Central America in FY
1986, a dramatic increase from FY 19:
levels and up somewhat from FY 1985
USIA hopes to maintain these prograr
at current levels, assuming no drastic
cuts in overall program budget levels.

Teaching of English. USIA has
established a regional English Teachir,
Office in Panama to develop and
improve English-language competencj
throughout Central America. Addition
ally, USIA has organized training
workshops for Central American libra)
ians, teachers of English, and Binatior
Center administrators. Plans are to co
tinue these efforts at somewhat reduct
levels.

The educational infrastructure in
Central America constrains the rate at
which the region can absorb additional
resources and programs. USIA staff ai
funding limitations also make further
expansion difficult. The agency believe
it is programming at the maximum levi
possible given these limitations and wil
continue to be flexible in the applicatio
of its resources to ensure the greatest
possible impact.

Caribbean Basin Initiative

Background. President Reagan
announced the Caribbean Basin Initia-
tive at a meeting of the Organization ol
American States in February 1982. He

Department of State Bulle

WESTERN HEMISPHERE

liroduced important new elements in
■iti.
I Congress passed the Caribbean
■sin Economic Recovery Act to enact
ft CBI on July 28, 1983. The law came
|o effect on January 1, 1984, with 20
Iintries and territories designated as
lieficiaries— Antigua and Barbuda,
jjrbados, Belize, the British Virgin
Bands, Costa Rica, Dominica,
■minican Republic, El Salvador,
lenada, Guatemala, Haiti, Honduras,
fnaica, Montserrat, Netherlands
litilles, Panama, St. Christopher and
Ivis, St. Lucia, St. Vincent and the
lenadines, and Trinidad and Tobago,
le Bahamas subsequently was desig-
jted on March 14, 1985, as was Aruba
■rmerly a part of the Netherlands
litilles) on April 11, 1986.
I Other countries— Canada, Mexico,
Id Venezuela— are making their con-
Ibution to the effort to help the Carib-
lan Basin realize its economic poten-
ll. Mexico and Venezuela have assisted
t i Caribbean beneficiaries in saving
lergy costs. Canada is offering a free
t ide program to the Caribbean
( mmonwealth nations.

I Duty-free Access. The CBI provides

■ years of duty-free access for most
i|S. imports from designated

1 neficiaries. The exceptions include
I :h items as textiles and apparel,
] troleum, footwear, flat goods (e.g.,
I ives, luggage, belts, and wallets), and
i ined tuna. CBI ethanol also enters
i ty free, but only if it meets the rules
i origin established in the 1986 tax law.

The CBI has been in effect for 3
jars. It has been successful in
i couraging the growth of nontradi-

■ nal exports from the Caribbean Basin
; the United States at a time when

i ices have fallen substantially and
irkets have contracted or shifted for
iditional exports, such as petroleum

. d sugar. U.S. nonpetroleum imports
)m the region have been growing at an
timated average annual rate of 7.1%

' 983-86). The CBI thus enables the
lited States to form a partnership with

) e Caribbean Basin beneficiaries in

I eating jobs and fostering economic

.owth through trade.

Textile Initiative. President Reagan
inforced the CBI in February 1986 by
lowing special access to the U.S.
arket for apparel assembled in the
aribbean Basin region from cloth cut
id formed in the United States,
kmaica, Haiti, Trinidad and Tobago,
id the Dominican Republic have signed
jecial access agreements for textiles.

Tax Benefits. The initial CBI
legislation offered a convention tax
benefit, under which the expenses of
business meetings in the CBl countries
can be deducted from U.S. taxable
income. To be eligible for this provision,
a country must sign a tax information
exchange agreement with the United
States.

Investment Incentive. CBI coun-
tries which have a tax information
exchange agreement in force are eligible
under our new tax law for investments
with funds generated in Puerto Rico
(through Sec. 936 of the IRS Code).
Jamaica and Barbados have such
agreements in effect; several other coun-
tries have concluded agreements which
have not yet entered into force.

The CBI Represents an Opportu-
nity. While the CBI may not have met
the expectations of many, it is doing
what it was intended to do— offering
opportunities for export expansion and
diversification. Many countries have
taken the difficult steps to open up their
economies to market forces so as to
encourage savings, investment, and
exports; they are taking risks to gain the
greatest benefits from the CBI. How-
ever, further economic policy changes
are needed to encourage private enter-
prise and attract foreign investment, if
the CBI countries want to compete in
today's markets.

Overseas Private
Investment Corporation

During the past 3 years, the Overseas
Private Investment Corporation has
intensified its efforts to facilitate U.S.
investment in Central America. During
FY 1984-86, OPIC insured annually an
average of 13 projects in the region. This
is more than double the average during
the previous 3-year period. To some
degree, this has been due to active
efforts to encourage host country
governments to improve their project
approval procedures. Also during the
last 3 years, OPIC has provided more
than $43 million in financing for 20 proj-
ects in 5 countries. This number of proj-
ects reflects OPIC's extensive efforts to
identify and package development-
related investments in the region.

Other efforts to encourage invest-
ment in the region include investment
missions to Costa Rica in FY 1984 and
to Belize in FY 1986. OPIC's Opportu-
nity Bank, a data base which serves to
match investment opportunities with

U.S. investors and host country part-
ners, now lists 145 project opportunities
and 548 U.S. firms that have expressed
interest in doing business in the region.
In addition, OPIC has registrations for
insurance for 112 projects in Central
America, worth $387 million in total
investment. While only a minority of
these registered projects will actually
become operational, the number appears
high enough to ensure that OPIC's past
achievements in the region should be
matched in the coming years.

Trade Credit Insurance
Program of Eximbank

One NBCCA recommendation was that
"new official trade credit guarantees be
made available to Central America" to
offset the decline in the availability of
U.S. bank lines and supplier credits used
to finance imports into the region. In
October 1984, Congress included a provi-
sion in the Foreign Assistance and
Related Agencies Appropriation Act,
which established for FY 1985 a trade
credit insurance program for Central
America.

Under the program, AID was
authorized to issue guarantees of up to
$300 million to Eximbank during FY
1985 for export credit insurance
authorized by Eximbank to support U.S.
exports to Central America's private
sector. At AID's request, its Board of
Directors authorized country limits for
FY 1985 totaling $255 million.

The Continuing Appropriations Act
of 1986 authorized AID again to issue
guarantees to Eximbank for export
credit insurance to be authorized by
Eximbank during FY 1986, but at a
reduced level of $250 million. At AID's
request, the $250 million was allocated
as follows: Costa Rica, $70 million; El
Salvador, $75 million; Guatemala, $70
million; and Honduras, $35 million. All
country limits will expire on Septem-
ber 30, 1987, i.e., U.S. banks may con-
firm letters of credit under the program
up to that date. It was renewed at a
$275 million level for FY 1987. Conse-
quently, toward the end of this fiscal
year, AID and Eximbank will consider
renewal and possible changes in the
various country limits.

The trade credit insurance program
is a letter of credit facility. The central
banks of the various countries act as
either guarantor or borrower. U.S.
banks, supported by Eximbank's insur-
ance, confirm and refinance the letters
of credit. The number of participating
U.S. banks per country ranges from one

\pr\\ 1987

WESTERN HEMISPHERE

(for Costa Rica) to eight (for El Salva-
dor). The number of local financial insti-
tutions that have opened letters of credit
ranges from 7 to 12. As Eximbank
insures 100% of principal and almost all
interest (including interest up to the day
a claim is paid to the U.S. banks), U.S.
banks showed considerable interest in
the program. Since there are many par-
ties involved in the process, the time
necessary for its implementation is con-
siderable, and in two countries (Costa
Rica and Guatemala), this facility is
growing more slowly than anticipated.

The first letters of credit were
opened in mid-1985. Through Decem-

ber 31, 1986, letters of credit confirmed
by U.S. banks totaled $195.8 million,
broken down as follows: El Salvador,
$109.8 million; Costa Rica, $44.6 million;
Honduras, $32.8 million; and Guatemala,
$8.6 million.

As participating U.S. banks establish
new banking relationships in Central
America (or reestablish old ones) and
have favorable repayment experiences,
there is the possibility that they may be
willing, at a future date, to do business
on an uninsured basis. The trade credit
insurance program then would be phased
out or reduced.

APPENDIX E

Progress in Meeting
Security Objectives

EL SALVADOR

Achievements:

—Civilian control of the armed
forces is a fact.

—Public image of the military in El
Salvador has changed from one of a
defender of a nondemocratic status quo
to protector of a democratic future.

—Armed forces are better organized,
trained, and equipped.

• Mobility is better than in 1984.

—Battlefield performance has
improved.

• Guerrillas now generally operate
secretly in small units against
economic targets versus previ-
ous strategy of direct conflict
with the military.

- Frequency of direct confronta-
tion has declined.

- Guerrilla strength believed to
have fallen to about 6,000
from a high of 9,000-11,000.

• Military operations are now sub-
ject to rules of engagement;
human rights violations have
declined dramatically.

- Most officers associated with
human rights abuses have
been removed from command
positions and units associated
with violations have been
disbanded.

—Armed forces are committed to an
ambitious civic action program entitled
"United to Reconstruct."

GUATEMALA

Achievements:

—Democratization and development
strategy initiated by the government in
1982 and continued by the current
elected civilian president has produced:

• A code of military conduct which
has improved civil-military
relations.

- A rural civilian population that
now participates in defense of
its villages.

—Military did not participate in or
attempt to influence the 1985 Assembly
and presidential elections.

—Military has achieved success on
the battlefield:

• The guerrilla threat is now
restricted to mountainous rural
areas and small Mexican border
areas.

- The size of guerrilla force is
estimated to be 1,500-2,000
and has not grown.

—Improvement in human rights and
political conditions has permitted the
Administration to meet congressional
certification requirements.

• Political violence has been
sharply reduced.

• Nonlethal military U.S. aid has
begun.

COSTA RICA

Achievements:

—Assistance is being used to train
and equip a rapid-reaction civil guard
force of less than 1,000 men and main-
tain a border guard force. However, cur-
rent funding will not properly support

equipment provided in earlier years a.
cannot support a continued training
program.

—U.S. security assistance has
strengthened the will of Costa Rica to
resist more confidently Nicaraguan
threats and blandishments. However,
reduced funding puts this at risk, rais
questions by the Costa Ricans as to oi
willingness to live up to our treaty coi
mitments, the cornerstone of Costa
Rican willingness to stand up to the
Sandinistas.

HONDURAS

Achievements:

—Armed forces were instrumenta
guaranteeing the 1985 election, suppo
ing the elected civilian leadership, and
developing the democratic constitutioi
system.

—U.S. military assistance is helpii
to build a more effective deterrent to
cross-border incursions by Nicaragua.

• The United States has provid<
emergency assistance in
response to Sandinista incur-
sions in 1986.

—Aging Super-Mystere fighters
have been overhauled to extend their
flight-life for the short term.

— Honduran armed forces have sui
cessfully detected and defeated terror
and guerrilla elements that have
sporadically surfaced since 1983.

—Numerous combined military ex«
cises have been conducted in Hondura
(e.g., Ahuas Tara, Kings Guard, Blazir
Trails, Cabanas).

• The joint U.S. -Honduran trair
ing exercises have provided in
dental benefits to Honduras,
such as medical treatment, ro;
building, and maintenance of
airstrips.

• U.S. training programs and
combined exercises have pro-
moted increased Honduran
armed forces professionaliza-
tion.

NICARAGUA

—Support to the democratic
resistance has impeded the total con-
solidation of the Sandinista Marxist-
Leninist regime.

• Internal opposition has been
given hope to continue strugglt
for democracy.

• The Sandinistas have been
forced to divert resources that

Department of State Bullet

WESTERN HEMISPHERE

otherwise would be available to
support insurgencies elsewhere.

Simultaneous support of the Con-
ora process and regional negotiations
a U.S. Special Envoy have tested
:aragua's willingness to resolve the
ntral American crisis.

• The Sandinistas are
intransigent.

—Security assistance to neighbors
has enabled these neighbors to more con-
fidently resist Nicaraguan pressures for
bilateral accommodations in lieu of
regional negotiations and has strength-
ened their will and capability to confront
blackmail and subversion from
Nicaragua.

>'PENDIX F

Dntral American
jjvelopment Organization

proposing the establishment of a
DO, the NBCCA had in mind a struc-
e that would provide a continuous and
lerent approach to the development of

region, a process of review of that
'elopment, and access to that process
those who have not before been an
agral part of it. The NBCCA recom-
nded that Central American partici-
ion in our assistance programs and in
DO should depend on acceptance of
1 continued progress toward such
jortant elements of democracy as
ipect for human rights, protection of
sonal and economic liberties, political
ralism, free elections, mutual secu-
', and a functioning legal system.

The Commission recommended cer-
1 principles to develop and institu-
lalize cooperation among the
mtries:

• That development of Central
lerica be a cooperative program with
icy issues addressed through a proc-

of joint deliberation among the

I mbers of CADO;

• That the program should promote
I development of Central America in

a its dimensions— economic prosperity,
S ial change, political modernization,
4 1 peace;

I • That while a CADO should exer-
I ? some control over development
Instance, the ultimate control of aid
lids will always rest with the donors
li that the governments, including that
I the United States, would not be bound
I accept the judgments of CADO;
I • That the structure of a CADO
fcist be established on a sufficiently per-
fcnent basis to demonstrate the long-
|'m commitment of both the United
lites and the Central American coun-
fles to the coordination of economic
y elopment with social and political
«velopment; and,

I • That a CADO must represent the
Itiative and enjoy the support of the

nations of the region or it cannot suc-
ceed.

Section 464 of the Foreign
Assistance Act expressed the sense of
Congress that the President should enter
into negotiations with the countries of
Central America to establish a CADO.
Since passage of the legislation in 1985,
preparatory work has been completed by
a working group composed of the U.S.
Government (i.e., the State Department
and AID), the American Institute of
Free Labor Development, the Council of
the Americas, the Association of the
American Chambers of Commerce in
Latin America, and Caribbean and Cen-
tral American Action. This work
included several rounds of consultations
with the government, labor, and
business sectors of the Central American
countries. This process culminated in a
seminar attended by government,
business, and labor representatives in
San Jose in September 1986 at which the
issues related to the establishment of an
organization such as CADO were
examined.

Soundings undertaken by U.S.
Embassies/AID Missions subsequent to
the seminar confirmed the generally
positive interest by business and labor
sectors and interest on the part of most
governments.

In November, the Honduran tripar-
tite organization invited one labor
representative each from Panama,
Guatemala, and Honduras (as an
observer); business representatives from
Honduras and El Salvador; and govern-
ment representatives from the United
States, Costa Rica, and Belize to form a
working group to prepare draft statutes.
(Costa Rica declined to attend.)

The working group met in Teguci-
galpa on December 15-17, 1986. The
members of the working group are now
consulting on this draft with their
governments and the other two sectors
in their respective countries. Another
meeting is anticipated in March 1987.

APPENDIX G

Peace Corps

In consonance with NBCCA recommen-
dations, Peace Corps developed an
Initiative for Central America (IFCA).
IFCA addresses the need for teacher
training, education, small business
development, housing, and improved
health in Belize, Guatemala, Honduras,
and Costa Rica. Further, following the
Caribbean Basin Economic Recovery Act
of 1983, countries in that area began a
major program to stimulate job-creating
small enterprises. Volunteers teach basic
skills for credit development and other
business management skills.

To achieve our program goals, the
Peace Corps has increased collaboration
with other government agencies, inter-
national agencies, and private and volun-
tary organizations. These collaborations
include projects with AID, the Inter-
American Development Bank, the Inter-
American Foundation, the Pan Ameri-
can Development Foundation, the
Organization of American States,
CARE, and CARITAS.

Small Enterprise Development. A

major priority is the development of
agricultural and other businesses to
generate income, provide food, and
create employment. In 1987, roughly
one-half of the Volunteers will be
involved directly or indirectly in the
planning, startup, and management of
small and medium-scale income-produc-
ing projects. The majority of these proj-
ects will be in the area of agribusiness
and food production.

Health, Nutrition, and Sanitation.

During the past two decades, host coun-
try governments have improved their
health services with assistance from
AID, the Inter-American Development
Bank, the Pan American Health
Organization, and other development
assistance agencies. In 1987, Volunteers
living mostly in rural communities will
continue to conduct health, nutrition,
and sanitation education courses for
rural mothers and train counterparts to
carry on this work. Volunteer nurses will
provide basic health care and help staff
rural health posts.

Environmental Education and
Management. In 1987, Volunteers will
continue to conduct educational courses
for small-scale farmers and provide
technical assistance in reforestation and
the energy-efficient use of firewood. The

Dril 1987

TREATIES

Peace Corps' work in environmental
management is enhanced by col-
laborative support from AID.

Appropriate Technology. Most
countries' dependence on expensive
imported fuel makes the introduction of
low-cost, simple, energy-efficient
technology an increasingly important
development priority. Programs intro-
ducing simple technologies that derive
their energy from wind, water, or
sunlight will be continued.

Refugees

People fleeing armed conflicts in
Nicaragua, El Salvador, and Guatemala
constitute the great majority of refugees
in need of protection and assistance in
Central America. The United States and
other donor countries have been working
together with various international
organizations to ensure that refugees
are protected and, where possible, are
assisted to return to their homes. Coun-
tries in the region, particularly Hon-
duras and Costa Rica, have been
generous in providing asylum. Resettle-
ment outside the region has been
necessary in relatively few cases.

Of an estimated 300,000 refugees in
Mexico and Central America, approx-
imately 120,000 were receiving
assistance from the UN High Commis-
sion for Refugees (UNHCR), as of
mid-1986: Mexico, 40,000; Honduras,
44,000; Costa Rica, 30,000; Belize, 4,500;
and Nicaragua, 2,300. Assistance for
registered refugees in Central America
is considered by experts to be generally
good. Of greater concern is the large
number of persons who have crossed
national borders without registering
themselves as refugees. They live
without official refugee status and pro-
tection and, in many cases with limited
access to food assistance, health care,
and other services normally provided to
refugees. The number of this group can
only be estimated; most authorities,
however, assume that it is several times
larger than the number of registered
refugees.

The United States is working to
improve the situation of refugees in Cen-
tral America.

First, the U.S. Government contrib-
utes a third of the UNHCR' s $40 million
budget in Latin America. We also con-
tribute to the Intergovernmental Com-
mittee on Migration programs for
refugees in the region and fund a
quarter of the International Red Cross'
$12-million budget for Latin America.

Second, we are working with coun-
tries of first asylum (i.e., the country to
which the refugees first flee) to improve
processing, assistance, and protection of
refugees.

Third, we are working with the
UNHCR and regional governments on
durable solutions, including integration
opportunities in countries of first
asylum, voluntary repatriation, and, in
those cases where it is considered appro-
priate, resettlement to a third country.

Fourth, we have expanded the Latin
American refugee admissions program
to enable qualified refugees to resettle in
the United States.

The major factors affecting refugee
flows in the region are the level of
economic growth and political stability in
the countries from which the refugees
have fled and continue to flee. Those two
factors are, of course, intertwined.
Although the United States will continue
its efforts (as outlined above), the
ultimate solution to the region's refugee
issue lies with progress toward political
and economic stability.

International Narcotics Control

Central America is a significant transit
region for narcotics entering the United
States from South America. There also
are areas where liberal bank and tax
laws have created environments useful
for narcotics-money laundering activi-
ties. Although some marijuana grown in
Central America is apparently entering
the U.S. market and some opium poppy
is now grown in Guatemala, the coun-
tries of the region have not been major
producers of narcotics.

Because U.S. narcotics control
strategy focuses on the eradication of
narcotic crops or interdiction at the
source (i.e., the major producing coun-
tries), funding provided to the Central
American countries has been limited.
Over the past several years, Belize has
received most of the funding provided to
the area to support a substantial aerial
herbicide eradication program.

Marijuana eradication has also been
funded in Panama and negotiations are
underway to fund an aerial herbicide
spray effort against opium poppy and
marijuana in Guatemala. Costa Rica and
Honduras have received small amounts
of support for equipment for interdiction
operations. Expansion of narcotics con-
trol funding for Central America in the
future will depend on the degree of pro-
duction and trafficking in the area. ■

Current Actions

MULTILATERAL

Aviation

Convention on international civil aviatior
Done at Chicago Dec. 7, 1944. Entered ii
force Apr. 4, 1947. TIAS 1591.

Protocol on the authentic trilingual text i
the convention on international civil avia
(TIAS 1591), with annex. Done at Bueno
Aires Sept. 24, 1968. Entered into force
Oct. 24, 1968. TIAS 6605.
Adherence deposited: Cook Islands, Aug.
1986.

Convention on offenses and certain othet
committed on board aircraft. Done at To I
Sept. 14, 1963. Entered into force Dec. 4 1
1969. TIAS 6768.

Accession deposited: Yemen (Sanaa),
Sept. 26, 1986.

Conservation

Convention on international trade in

endangered species of wild fauna and flo

with appendices. Done at Washington M;

1973. Entered into force July 1, 1975. TI

8249.

Accessions deposited: Dominican Republ

Dec. 17, 1986; Singapore, Nov. 30, 1986.

Notification of denunciation: United Aral

Emirates, Jan. 27, 1987, effective Jan. 2'

1988.

Territorial application: Extended by Porl

to Macao effective Apr. 22, 1987.

Amendment to the convention of Mar. 3,
1973, on international trade in endanger
species of wild fauna and flora (TIAS 82'
Done at Gaborone Apr. 30, 1983. »
Acceptance deposited: France, Sept. 16,

Convention on the conservation of Antar

marine living resources, with annex for i

arbitral tribunal. Done at Canberra May

1980. Entered into force Apr. 7, 1982. T!

10240.

Accession deposited: Greece, Feb. 12, 19

Convention on wetlands of international
importance especially as waterfowl habit;
Done at Ramsar Feb. 2, 1971. Entered ir
force Dec. 21, 1975.
Enters into force for the U.S.: Apr. 18, 1

Finance

Convention on the settlement of investm<

disputes between states and nationals of

other states. Done at Washington Mar. 1

1965. Entered into force Oct. 14, 1966. T

6090.

Signature: Belize, Dec. 19, 1986.

Fisheries

Protocol to amend the international conv

tion of May 14, 1966, for the conservatioi

Atlantic tunas (TIAS 6767). Done at Pari;

July 10, 1984. 1

Acceptance deposited: U.S.S.R., June 9,

1986.

Department of State Bull

Warfare

tocol for the prohibition of the use in war
sphyxiating, poisonous, or other gases,
of bacteriological methods of warfare.
ie at Geneva June 17, 1925. Entered into
e Feb. 8, 1928; for the U.S. Apr. 10, 1975.
S8061.

essions deposited: Afghanistan, Benin,
lien (Aden), Dec. 9, 1986.

icial Procedure

vention on the taking of evidence abroad
ivil or commercial matters. Done at The
^ue Mar. 18, 1970. Entered into force Oct.
972. TIAS 7444.
ritorial application: Extended by U.K. to

:ey Jan. 6, 1987. 1

ine Pollution

rnational convention on the establishment

n international fund for compensation for

iollution damage. Done at Brussels

, 18, 1971. Entered into force Oct. 16,

I. 3

ession deposited: Greece, Dec. 16, 1986.

vention for the protection and develop-
t of the marine environment of the wider
ibbean region, with annex, with protocol
lerning cooperation in combatting oil
s in the Caribbean region, with annex.
e at Cartagena Mar. 24, 1983. 1
ession deposited: Antigua and Barbuda,

18, 1986.
fication deposited: Venezuela, Nov. 11,

illations for the prevention of pollution by

iage from ships, Annex V to the interna-

al convention for the prevention of pollu-

ffrom ships (MARPOL 73/78). Done at

don Nov. 2, 1973. 1 [Senate] Treaty

. 100-3.

ismitted to Senate for advice and

tent: Feb. 9, 1987.

lear Material — Physical Protection

vention on the physical protection of
ear material, with annexes. Done at Vien-
[>ct. 26, 1979.
ered into force: Feb. 8, 1987.

fications deposited: Indonesia,

5, 1986; Switzerland, Jan. 9, 1987.

ific Settlement

vention for the pacific settlement of inter-
onal disputes. Signed at The Hague Oct.
1907. Entered into force Jan. 26, 1910. 36
.. 2199. TS 536.
ession deposited: Nigeria, Dec. 18,

tal

•d additional protocol to the constitution
,1e Universal Postal Union of July 10,
4, general regulations with annex, and the
wsal postal convention with final protocol
detailed regulations. Done at Hamburg
27. 1984. Entered into force Jan. 1.
6; for the U.S. June 6, 1986.

Accessions deposited: Philippines,
Dec. 11, 1986; St. Lucia, Dec. 19, 1986.
Ratifications deposited: Canada, Jan. 8,
1987; Guatemala, Nov. 17, 1986; Madagascar,
Dec. 3, 1986; Netherlands, Jan. 8, 1987. 1

Money orders and postal travelers' checks

agreement, with detailed regulations with

final protocol. Done at Hamburg July 27,

1984. Entered into force Jan. 1, 1986; for the

U.S. June 6, 1986.

Approvals deposited: Madagascar,

Dec. 3, 1986; Netherlands, Jan. 8, 1987. 4

Postal parcels agreement with final protocol
and detailed regulations. Done at Hamburg
July 27, 1984. Entered into force Jan. 1,
1986; for the U.S. June 6, 1986.
Accessions deposited: Guatemala,
Nov. 17, 1986; St. Lucia, Dec. 19, 1986.
Approvals deposited: Madagascar,
Dec. 3, 1986; Netherlands, Jan. 8, 1987. 4

Prisoner Transfer

Convention on the transfer of sentenced per-
sons. Done at Strasbourg Mar. 21, 1983.
Entered into force July 1, 1985. TIAS 10824.
Acceptance deposited: Finland, Jan. 29,
1986. 5

Ratification deposited: Denmark,
Jan. 16, 1987. 5 - 6

Territorial application: Extended by the
U.K. to Anguilla, British Indian Ocean Ter-
ritory, Cayman Islands, Falkland Islands,
Gibraltar, Montserrat, Pitcairn, Henderson,
Ducie and Oeno Islands, St. Helena, St.
Helena Dependencies, and Sovereign Base
Areas of Akrotiri and Dhekelia in the Island
of Cyprus, effective May 1, 1987.

Red Cross

Protocol additional to the Geneva conventions
of Aug. 12, 1949 (TIAS 3362, 3363, 3364,
3365), and relating to the protection of vic-
tims of noninternational armed conflicts (Pro-
tocol II). Adopted at Geneva June 8, 1977.
Entered into force Dec. 7, 1978. 3 [Senate]
Treaty Doc. 100-2.
Transmitted to Senate for advice and
consent: Jan. 29, 1987.

Trade— Textiles

Protocol extending the arrangement of
Dec. 20, 1973, regarding international trade
in textiles (TIAS 7840). Done at Geneva
July 31, 1986. Entered into force Aug. 1,
1986; for the U.S. Aug. 5, 1986.
Acceptance deposited: Portugal on behalf of
Macao, Jan. 28, 1987.

Weights and Measures

Convention establishing an International
Organization of Legal Metrology. Done at
Paris Oct. 12, 1955. Entered into force May
28, 1958; for the U.S. Oct. 22, 1972, as
amended Jan. 18, 1968. TIAS 7533.
Accession deposited: Portugal, Nov. 26, 1986.

Wheat

Wheat trade convention, 1986. Done at Lon-
don Mar. 14, 1986. Entered into force July 1,
1986. 7 [Senate] Treaty Doc. 100-1.

TREATIES

Food aid convention, 1986. Done at London
Mar. 13, 1986. Entered into force July 1,
1986. 7 [Senate] Treaty Doc. 100-1.
Transmitted to Senate for advice and
consent: Jan. 20, 1987.

BILATERAL

Argentina

Agreement relating to the employment of
dependents of official government employees.
Effected by exchange of notes at Buenos
Aires May 28 and Dec. 15, 1986. Entered into
force Dec. 15, 1986.

China

Memorandum of understanding concerning
INTELPOST field trial, with details of imple-
mentation. Signed at Beijing and Washington
Jan. 17 and Feb. 5, 1987. Entered into force
Mar. 1, 1987.

Agreements amending agreement of Aug. 19,
1983, as amended, relating to trade in cotton,
wool, and manmade fiber textiles and textile
products. Effected by exchange of notes at
Washington Jan. 15-16, 1987. Entered into
force Jan. 16, 1987.

Agreement concerning maritime search and
rescue cooperation. Signed at Washington
Jan. 20, 1987. Entered into force Jan. 20,
1987.

France

Technical exchange and cooperation arrange-
ment in the field of light water reactor safety
research, with appendices. Signed at Paris
and Washington Nov. 28 and Dec. 31, 1986.
Entered into force Dec. 31, 1986.

Guatemala

Agreement for sales of agricultural com-
modities. Signed at Guatemala July 2, 1986;
with amendment signed at Guatemala
Aug. 29, 1986.
Entered into force: Jan. 2, 1987.

Guyana

Agreement amending agreement of Aug. 7,
1986, for sales of agricultural commodities.
Effected by exchange of notes at Georgetown
Sept. 25 and 30, 1986. Entered into force
Sept. 30, 1986.

Hungary

Agreement amending agreement of Feb. 15
and 25, 1983, as amended and extended
relating to trade in wool textile products.
Effected by exchange of notes at Budapest
Dec. 30, 1986, and Jan. 6, 1987. Entered into
force Jan. 6, 1987.

India

Agreement on educational, cultural, and
scientific cooperation, with related letter.
Signed at New Delhi Jan. 7, 1987. Entered
into force Jan. 7, 1987, for certain provisions;
others upon completion of appropriate U.S.
legislative action.

ril 1987

PRESS RELEASES

Agreement relating to trade in textiles and
textile products, with annexes. Effected by
exchange of notes at Washington Feb. 6,
1987. Entered into force Feb. 6, 1987; effec-
tive Jan. 1, 1987.

Jamaica

Agreement for sale of agricultural com-
modities, with agreed minutes. Signed at
Kingston Jan. 15, 1987. Entered into force
Jan. 15, 1987.

Japan

Agreement on maritime search and rescue.
Signed at Tokyo Dec. 12, 1986. Entered into
force Dec. 12, 1986.

Agreement relating to development of the
XSH-60J weapon system. Effected by
exchange of notes at Tokyo Jan. 20, 1987.
Entered into force Jan. 20, 1987.

Agreement concerning special measures
relating to the agreement under Art. VI of
the treaty of mutual cooperation and security
regarding facilities and areas and the status
of U.S. Armed Forces in Japan (TIAS 4510),
with agreed minutes. Signed at Tokyo
Jan. 30, 1987. Enters into force on exchange
of notes indicating approval by both govern-
ments in accordance with their respective
internal legal procedures.

Jordan

International express mail agreement, with
detailed regulations. Signed at Amman and
Washington Dec. 31, 1986, and Jan. 30, 1987.
Entered into force Mar. 27, 1987.

Mexico

Agreement of cooperation regarding trans-
boundary shipments of hazardous substances.
Signed at Washington Nov. 12, 1986.
Entered into force: Jan. 29, 1987.

Agreement of cooperation regarding trans-
boundary air pollution caused by copper
smelters. Signed at Washington Jan. 29,
1987. Entered into force Jan. 29, 1987.

Netherlands

Protocol to amend the protocol of Mar. 31,
1978 (TIAS 8998), relating to the air
transport agreement of 1957 (TIAS 4782).
Signed at Washington June 11, 1986.
Entered into force: Feb. 2, 1987.

Singapore

Memorandum of understanding concerning
INTELPOST field trial, with details of
implementation. Signed at Singapore and
Washington Nov. 26, 1986, and Feb. 5, 1987.
Entered into force Feb. 5, 1987; effective
Dec. 1, 1986.

Switzerland

Agreement on cooperation in radioactive
waste management safety research, with
appendix. Signed at Bethesda and Baden
Aug. 26 and Sept. 26, 1986. Entered into
force Sept. 26, 1986.

Tunisia

Agreement amending the agreement of
June 11, 1986, for sale of agricultural com-
modities. Signed at Tunis Jan. 23, 1987.
Entered into force Jan. 23, 1987.

U.S.S.R.

Agreement concerning confidentiality of data
on deep seabed areas, with related exchange
of letters and agreed record. Effected by
exchange of notes at Moscow Dec. 5, 1986.
Entered into force Dec. 5, 1986.

United Kingdom

Memorandum of understanding for procure-
ment of RN ship-launched harpoon weapon
system. Signed at London Oct. 17, 1986.
Entered into force Oct. 17, 1986.

Venezuela

Agreement extending agreement of Dec. 26,
1984, establishing a Venezuela-United States
agriculture commission. Effected by exchange
of notes at Washington Dec. 18, 1986, and
Feb. 6 and 13, 1987. Entered into force
Feb. 13, 1987; effective Dec. 26, 1986.

Department of State

Press releases may be obtained from the
Office of Press Relations, Department of
State, Washington, D.C. 20520.

No. Date Subject

*23 2/2 Shultz: interview by news

correspondents in Boston,
Miami, Houston, Detroit,
New York, and Minne-
apolis through satellite by
CONUS Communications,
Jan. 29.

Shultz: statement on William
Casey.

Shultz: statement before
Senate Armed Services
Committee.

Shultz: arrival statement,
Douala, Cameroon, Jan. 9.

Shultz: departure statement,
Douala, Jan. 9.

Shultz: remarks at
American-Australian
bicentennial dinner,
Feb. 3.
29 2/5 Shultz: statement before the

Senate Foreign Relations
Committee on Iran-contra
aid affairs, Jan. 27.
*30 2/5 Shultz: statement before

House Budget Committee
on international affairs
and State Department
funding, Jan. 28.
31 2/6 American Foreign Policy:

Current Documents, 1985.
released.
*32 2/6 Shultz: news conference,

Abidjan, Cote d'lvoire,
Jan. 13.

2/2

2/3

2/4

Memorandum of understanding concernini
cooperation in the geological sciences. Sigl
at Washington Feb. 6, 1987. Entered into
force Feb. 6, 1987.

World Meteorological Organization

Agreement relating to a procedure for U. I
income tax reimbursement, with annex.
Signed at Geneva Jan. 23, 1987. Entered
force Jan. 23, 1987.

Zaire

Agreement amending and extending the I
agreement of Apr. 14, 1984, for technical
assistance for the maintenance of the exti
high voltage DC intertie Inga-Shaba proje
Signed at Kinshasa July 3, 1986. Entered
force July 3, 1986.

'Not in force.
2 With designation(s).
3 Not in force for the U.S.
4 Also on behalf of Aruba and the
Netherlands Antilles.
6 With declaration(s).
6 With reservation(s).
'Provisionally in force for the U.S.

33 2/9 Shultz: interview on ABC-

TV's "This Week With
David Brinkley," Feb. 8

*34 2/10 Shultz: remarks on receipt
Certificate of Meritorioi
Service by the Americai
Legion Auxiliary, Feb.

*35 2/10 Shultz: departure remarks
Nairobi, Kenya, Jan. 12
36 2/11 Shultz: statement before
Senate Budget Commitl
Jan. 23.

*37 2/11 Shultz: remarks at the

foreign policy conferenc
for leaders in teachers
education.

*38 2/12 Shultz: interview on NBC-
TV's "Evening News,"
Feb. 11.

*39 2/13 Program for the official
working visit to
Washington, D.C, of
Israeli Prime Minister
Shamir, Feb. 17-20.

*40 2/13 Shultz: statement before tl
House Appropriations
Committee, Subcommitt
on Defense, Feb. 11.
41 2/13 Shultz: address and questii
and-answer session befo
the American Bar Assoc
tion, New Orleans,
Feb. 12.

*42 2/12 Frank Shakespeare sworn
as Ambassador to the Hi
See, Dec. 15, 1986
(biographic data).

Department of State Built

PUBLICATIONS

2/19

2/24

2/26

2/27

Shultz: remarks before the
National Council for Inter-
national Visitors, Feb. 18.

Shultz: remarks and
question-and-answer ses-
sion before the American
Association of Community
College Trustees, Feb. 23.

Shultz: remarks at U.S.
Holocaust Memorial Coun-
cil conference. Feb. 23.

Shultz: address and question-
and-answer session before
the Institute of Interna-
tional Education and the
World Affairs Council,
Denver, Feb. 20.

Shultz: remarks before Peace
Corps country directors,
Feb. 25.

Shultz: audiotaped remarks
on the occasion of the 45th
anniversary of Voice of
America, Feb. 24.

Shultz: statement before the
Senate Foreign Relations
Committee, Feb. 24.

Not printed in the BULLETIN.

5 releases may be obtained from the
c Affairs Office, U.S. Mission to the
id Nations, 799 United Nations Plaza,
York, N.Y. 10017.

Date

11/5

11/7

11/11

11/12

11/14

Subject

Clark: human rights, Com-
mittee III.
Scott: Palestinian people,

Committee II, Nov. 4.
Moore: refugees, Committee

III.
Montgomery: information,

Special Political

Committee.
Byrne: apartheid, UN

General Assembly,

Nov. 10.
Kennedy: IAEA report, UN

General Assembly.
Montgomery: information,

Special Political

Committee.
Reed: International Civil

Service Commission and

UN Joint Staff Pension

Board reports,

Committee V.
Byrne: refugees, Ad Hoc

Committee for Voluntary

Contributions to the

UNHCR.
Byrne: religion, Committee

III.

*155

11/18

*156

11/18

*157

11/18

158

11/18

159

11/19

*160

11/18

•161

11/20

♦162

11/20

*163

11/20

*164

11/20

*165

11/21

*166

11/21

*167

11/24

168

11/24

*169

11/26

•170

11/25

*171

11/26

Trible: Central America, UN
General Assembly.

Reed: operations activities
for development, Commit-
tee II.

U.S.-U.S.S.R. bilateral talks
adjourn.

Okun: Libya, Security
Council.

Pressler: Libya, UN General
Assembly.

Yost: Central America, UN
General Assembly.

Byrne: Namibia, UN General
Assembly.

Byrne: Palau, Trusteeship
Council.

Montgomery: Israeli practice
effecting human rights in
occupied territories, Spe-
cial Political Committee.

Byrne: human rights, Com-
mittee III.

Michalski: Namibia, Commit-
tee V, Nov. 19.

Shearouse: personnel ques-
tions, Committee V.

Norris: Nicaragua, Commit-
tee II, Nov. 21.

Moore: UNRWA, Ad Hoe
Committee on Voluntary
Contributions.

Walters: Cuba, Committee
III.

Clark: outer space, Special
Political Committee.

Reed: El Salvador, Special
Meeting on Emergency
Assistance.

*172 11/28

*173 11/28

Montgomery: information,

Special Political

Committee.
Lowell: remote sensing of

the Earth from space,

Special Political

Committee.
Okun: arms embargo. Secu-
rity Council.
Okun: Palestine, UN General

Assembly.
Norris: external debt crisis.

Committee II, Nov. 28.
Byrne: Chile, Committee III,

Nov. 28.
Mrs. Martin Luther King,

Jr., presents memorial

plaque to the UN.
Byrne: Middle East, UN

General Assembly.
Byrne: Chile, UN General

Assembly, Dec. 4.
Walters: Nicaragua, UN

General Assembly.
Michalski: budget, Commit-
tee V.
Norris: health and environ-
ment, UN General

Assembly.
Norris: front-line states, UN

General Assembly.
Walters: Central America,

Security Council.
Walters: UN finance review,

UN General Assembly.
UN General Assembly

Review: 1986.

• Not printed in the BULLETIN.

*174

11/28

•175

12/2

•176

12/3

•177

12/4

*178

12/4

•179

12/4

•180

12/5

•181

12/5

•182

12/8

•183

12/8

•184

12/8

•185

12/10

•186

12/19

187

12/31

Department of State

Free single copies of the following Depart-
ment of State publications are available from
the Correspondence Management Division,
Bureau of Public Affairs, Department of
State, Washington, D.C. 20520.

Secretary Shultz

U.S. Interests in the Persian Gulf, Senate
Foreign Relations Committee, Jan. 27, 1987
(Current Policy #911).

Pursuing an Effective Foreign Policy, Senate
Armed Services Committee, Feb. 3, 1987
(Current Policy #912).

Nicaragua: The Moral and Strategic Stakes,
American Bar Association, New Orleans,
Feb. 12, 1987 (Current Policy #918).

Meeting America's Foreign Policy
Challenges, Institute of International
Education and the World Affairs Council,
Denver, Feb. 20, 1987 (Current Policy
#921).

Arms Control

The Nuclear and Space Negotiations:
Translating Promise to Progress, Ambas-
sador Nitze, World Affairs Council, Boston,
Jan. 14, 1987 (Current Policy #910).

Department

The Department of State and the Foreign
Affairs Budget (Public Information Series,
Jan. 1987).

Energy

Oil and Energy (GIST, Feb. 1987).

Europe

Expulsions of Soviet Officials, 1986 (Foreign
Affairs Note, Jan. 1987).

Human Rights

Soviet Repression of the Ukrainian Catholic
Church, Jan. 1987 (Special Report #159).

South Asia

Indian Ocean Region (GIST, Feb. 1987).

Western Hemisphere

Debt and Growth in Latin America and the

Caribbean (GIST, Feb. 1987).
Soviet Activity in Latin America (GIST,

Feb. 1987). ■

il 1987

PUBLICATIONS

Current Documents Volume Released

The Department of State on February 6,
1987, released American Foreign Policy:
Current Documents, 1985. The book is
the most recent volume in an ongoing
Department of State series.

Like earlier volumes in the series,
this book presents official public expres-
sions of policy that best set forth the
goals and objectives of United States
foreign policy. Included are the texts of
major official messages, addresses,
statements, interviews, press con-
ferences and briefings, reports, congres-
sional testimony, and communications by
the White House, the Department of
State, and other Federal agencies or
officials involved in the foreign policy
process. The volume contains 1,125
pages arranged chronologically within 15
geographic and topical chapters, and
includes a list of documents, editorial
annotations, maps, a list of names and
abbreviations, and an index.

The volume covers the first year of
the second Reagan Administration. It
presents the major statements by Presi-
dent Reagan, the Secretary of State, and
other government leaders setting forth
the most important general principles of
American foreign policy in 1985. Policy
statements are included on national
security policy, arms control, foreign
economic policy, terrorism, narcotics,
the role of the United States in the
United Nations, the approach to human
rights around the world, and the concern
with refugees. The volume also presents
expressions of U.S. policy on regional
and bilateral aspects of American
foreign relations in 1985.

The American Foreign Policy
documentary series began in 1950.

Following the publication of three
volumes covering the 1941 to 1955
years, annual volumes entitled American
Foreign Policy: Current Documents were
issued for the years 1956-1967. After an
interruption the series was resumed with
the publication in August 1983 of
American Foreign Policy: Basic
Documents, 1977-1980. The annual
volumes were revived with the publica-
tion of American Foreign Policy: Cur-
rent Documents, 1981. The 1982, 1983,
and 1984 annual volumes have also been
published. It is the Department's inten-
tion to publish the annual volume for
1986 later this year.

The Department, which released a
microfiche supplement to the 1981
printed volume in February 1985, also
plans to publish microfiche supplements
to the later printed volumes in the

series. These microfiche publication;
include the full texts of many documlj
printed only in part in the printed
volumes and will also reproduce a m t
larger and more complete selection (
documents than appears in the book
American Foreign Policy: Currt
Documents, 1985 was prepared in th<
Office of the Historian, Bureau of Pil
Affairs, Department of State. Copie:|
this volume (Department of State
Publication No. 9485; GPO Stock Nc
044-000-02136-6) may be purchase! |
$31.00 (domestic prepaid) from the
Superintendent of Documents, U.S.
Government Printing Office,
Washington, D.C. 20402. Checks or
money orders should be made payab tj
the Superintendent of Documents.

Press release 31 of Feb. 6, 1987.

Background Notes

This series provides brief, factual summaries
of the people, history, government, economy,
and foreign relations of about 170 countries
(excluding the United States) and of selected
international organizations. Recent revisions
are:

Audorra (Dec. 1986)
Guatemala (Dec. 1986)
Index (Dec. 1986)
Jamaica (Jan. 1987)
Togo (Jan. 1987)

A free copy of the index only may bi
obtained from the Correspondence Mana
ment Division, Bureau of Public Affairs,
Department of State, Washington, D.C.
20520.

For about 60 Background Notes a ye:
subscription is available from the Superii
ent of Documents, U.S. Government Pri
Office, Washington, D.C. 20402, for $32.
(domestic) and $40.00 (foreign). Check oi
money order, made payable to the
Superintendent of Documents, must acc(
pany order. ■

Department of State Bui

fDEX

>ril 1987

«lume 87, No. 2121

jerican Principles

jitaining the Momentum in U.S. Foreign

Ihlicy (Whitehead) 35

' Auing an Effective Foreign Policy

Jlhultz) 11

'4s Control

lilaest for Excellence (Reagan, excerpts) 1

Fi'etary's Interview on "This Week With

ijkvid Brinkley" 8

H Arms Control Initiatives 16

«ze. A Plan for Fully Funding NBCCA

j ^commendations 59

ifcil. U.S. International Trade (White

; ()Duse statement) 32

lia. 1986 Human Rights Report Released

Ichifter) 37

ogress
Jan for Fully Funding NBCCA

•i'commendations 59

j);uing an Effective Foreign Policy

Ihultz) 11

liest for Excellence (Reagan, excerpts) 1
9 Report on Cyprus (message to the

■ingress) 34

Trade Policy and the Trade Deficit

eutter) 22

.a Rica. A Plan for Fully Funding

3CCA Recommendations 59

-us. 30th Report on Cyprus (message to

e Congress) 34

;hoslovakia. Czechoslovak Human

ghts Initiative (Reagan) 45

omacy. Pursuing an Effective Foreign

)licy (Shultz) 11

iiomics

nee Ministers Meet on Exchange Rates

atement) 31

;an Politics in Transition (Sigur) 19

ing America's Foreign Policy

allenges (Shultz) 5

an for Fully Funding NBCCA

icommendations 59

d (Reagan) 33

uing an Effective Foreign Policy

ultz) 11

jest for Excellence (Reagan, excerpts) 1
Mexico Binational Commission Meets

epulveda, Shultz) 54

I Trade Policy and the Trade Deficit

eutter) 22

i .alvador. A Plan for Fully Funding

) BCCA Recommendations 59

i ironment. U.S. -Mexico Binational Com-

j ission Meets (Sepulveda, Shultz) 54

i ope

.Torts from the EEC (proclamation). ... 30

J . Arms Control Initiatives 16

lima CSCE Followup Meeting Resumes

! teagan) 34

Feign Assistance

klan for Fully Funding NBCCA

eccimmendations 59

Pretary's Interview on "This Week With

avid Brinkley" 8

Hitemala

1'ii Human Rights Report Released

Shifter) 37

I 'Ian for Fully Funding NBCCA
econimendations 59

Haiti. 1986 Human Rights Report Released

(Schifter) 37

Honduras. A Plan for Fully Funding NBCCA

Recommendations 59

Human Rights

Czechoslovak Human Rights Initiative

(Reagan) 45

Human Rights, the Soviet Union, and the

Helsinki Process (Schifter) 42

1986 Human Rights Report Released

(Schifter) 37

A Plan for Fully Funding NBCCA

Recommendations 59

Poland (Reagan) 33

A Quest for Excellence (Reagan, excerpts) . 1
The Reality About Human Rights in the

U.S.S.R. (Schifter) 38

Release of Soviet Political Prisoners (Depart-
ment statement) 39

Vienna CSCE Followup Meeting Resumes

(Reagan) 34

Iran. Iran-Iraq War (Reagan) 52

Iraq. Iran-Iraq War (Reagan) 52

Israel. Visit of Israeli Prime Minister Shamir

(Reagan, Shamir, Shultz) 49

Korea. Korean Politics in Transition

(Sigur) 19

Lebanon

Kidnappings in Lebanon (Reagan) 51

Secretary's Interview on "This Week With

David Brinkley" 8

Mexico. U.S. -Mexico Binational Commission

Meets (Sepulveda, Shultz) 54

Monetary Affairs. Finance Ministers Meet

on Exchange Rates (statement) 31

Narcotics

International Narcotics Control Strategy

Report Released 52

Maintaining Momentum in U.S. Foreign

Policy (Whitehead) 35

U.S. -Mexico Binational Commission Meets

(Sepulveda, Shultz) 54

Nicaragua. A Plan for Fully Funding

NBCCA Recommendations 59

North Atlantic Treaty Organization. U.S.

Arms Control Initiatives 16

Nuclear Policy

South Pacific Nuclear Free Zone Treaty

(Department statement) 53

U.S. Arms Control Initiatives 16

Organization of American States. Collective

Security and the Inter-American System

(historical study) 56

Pacific. South Pacific Nuclear Free Zone

Treaty (Department statement) 53

Panama. A Plan for Fully Funding NBCCA

Recommendations 59

Philippines. Philippine Constitutional

Plebiscite (White House statement) .... 21

Poland. Poland (Reagan) 33

Presidential Documents

Czechoslovak Human Rights Initiative ... 45

Imports from the EEC (proclamation). ... 30

Iran-Iraq War 52

Kidnappings in Lebanon 51

A Plan for Fully Funding NBCCA

Recommendations 59

Poland 33

A Quest for Excellence (excerpts) 1

30th Report on Cyprus (message to the

Congress) 34

Vienna CSCE Followup Meeting Resumes 34
Visit of Israeli Prime Minister Shamir

(Reagan, Shamir, Shultz) 49

Visit of Zaire's President (Mobutu,

Reagan) 15

Publications

Background Notes 90

Current Documents Volume Released .... 90

Department of State 89

International Narcotics Control Strategy

Report Released 52

1986 Human Rights Report Released

(Schifter) 37

South Africa. 1986 Human Rights Report

Released (Schifter) 37

Terrorism

Kidnappings in Lebanon (Reagan) 51

Meeting America's Foreign Policy

Challenges (Shultz) 5

Pursuing an Effective Foreign Policy

(Shultz) 11

A Quest for Excellence (Reagan, excerpts) 1
Secretary's Interview on "This Week With

David Brinkley" 8

Uniting Against Terrorism (Bush) 3

Trade

Imports from the EEC (proclamation). ... 30

Korean Politics in Transition (Sigur) 19

A Quest for Excellence (Reagan, excerpts) 1
U.S. International Trade (White House

statement) 32

U.S. Trade Policy and the Trade Deficit

(Yeutter) 22

Treaties

Collective Security and the Inter-American

System (historical study) 56

Current Actions 86

U.S.S.R.

Human Rights, the Soviet Union, and the

Helsinki Process (Schifter) 42

Meeting America's Foreign Policy Challenges

(Shultz) 5

1986 Human Rights Report Released

(Schifter) 37

A Quest for Excellence (Reagan, excerpts) 1
The Reality About Human Rights in the

U.S.S.R! (Schifter) 38

Release of Soviet Political Prisoners (Depart-
ment statement) 39

Secretary's Interview on "This Week With

David Brinkley" 8

U.S. Arms Control Initiatives 16

Western Hemisphere

Collective Security and the Inter-American

System (historical study) 56

A Plan for Fully Funding NBCCA

Recommendations 59

A Quest for Excellence (Reagan,

excerpts) 1

Zaire. Visit of Zaire's President (Mobutu,

Reagan) 15

Name Index

Bush, Vice President 3

Mobutu, Sese Seko 15

Painter, David S 56

Reagan, President . . 1, 15, 30, 33, 34, 45, 49,

51/52, 59

Schifter, Richard 37, 38, 42

Sepulveda, Bernardo 54

Shamir, Yitzhak 49

Shultz, Secretary 5, 8, 11, 49, 54

Sigur, Gaston, J., Jr 19

Whitehead, John C 35

Yeutter, Clayton 22

Superintendent of Documents
U.S. Government Printing Office
Washington, D.C. 20402

OFFICIAL BUSINESS
Penalty for Private Use $300

Second Class Mail

Postage and Fees Paid

U.S. Government Printing Office

ISSN 0041-7610

Department

.3'-

jm of Staif If If J •

buiiettn

Tie Official Monthly Record of United States Foreign Policy / Volume 87 / Number 2122

May 1987

ENTENI

80STC:

*% > FY 1988 Assistance:
Africa/11
East Asia/30
Europe/48

Middle East & South Asia/59
Western Hemisphere/84

Department of State

bulletin

Volume 87 / Number 2122 / May 1987

GEORGE P. SHULTZ

Secretary of State

GEORGE B. HIGH

Acting Assistant Secretary
for Public Affairs

PAUL E. AUERSWALD

Director,

Office of Public Communication

NORMAN HOWARD

Chief, Editorial Division

PHYLLIS A. YOUNG

Editor

SHARON R. LOTZ

Assistant Editor

Department of State Bulletin (ISSr
0041-7610) is published monthly (plus ai
index) by the Department of State, 220:
Street, NW, Washington, D.C. 20520. S
class postage paid at Washington, D.C,
additional mailing offices. POSTMASTE
Send address changes to Superintenden
Documents, U.S. Government Printing (
Washington, D.C. 20402.

For sale by the Superintendent of Docu-
ments, U.S. Government Printing Office,
Washington, D.C. 20402.

CONTENTS

he President

Iran Arms and Contra Aid

Controversy
News Conference of March 19

Economics

he Secretary

Visit to Asia

frica

FY 1988 Assistance Requests for
Sub-Saharan Africa (Roy A.
Stacy)

rms Control

J U.S. Tables Draft INF Treaty

(President Reagan, U.S.

Delegation Statement)
f President Meets With Arms

Negotiators (President Reagan)
J Nuclear and Space Arms Talks

Close Round Seven (Max M.

Kampelman)
INF Extended Session Ends

(Maynard W. Glitman,

President Reagan)
Arms Control and Openness

(Kenneth L. Adelman)
Soviet Nuclear Test Vents

Radioactive Debris

epartment

) Under-funding and Undermining
Our Foreign Policy Infra-
structure (Ronald I. Spiers)

T How Much Security Is Enough?
(Robert E. Lamb)

ast Asia

} The Cambodian Issue ( John C.
Monjo)
FY 1988 Assistance Requests for
East Asia and the Pacific
(Gaston J. Sigur, Jr.)

Structural Adjustment, Dialogue,
and U.S. -Japan Economic Rela-
tions (W. Allen Wallis)

U.S. Foreign Agricultural Policy
and the Sugar Program
(Douglas W. McMinn)

Europe

43 U.S. -Soviet Relations (John C.
Whitehead)

45 The U.S.-Soviet Bilateral Rela-
tionship (Mark R. Parris)

48 FY 1988 Assistance Requests for
Europe (Rozanne L. Ridgway)

52 U.S., Turkey Extend Agreement
on Defense and Economic
Cooperation (Secretary Shultz)

Foreign Assistance

54 U.S. Initiative for Southern

Africa (M. Peter McPherson)

56 U.S. Development Strategy for
Sub-Saharan Africa (M. Peter
McPherson)

Middle East

59 FY 1988 Assistance Requests

for the Middle East and South
Asia (Richard W. Murphy)

Refugees

65 Refugee Situation in Southern
Africa (Michael H. Armacost)

Science & Technology

67 Multilateral Agreement on Space

Station (Joint Statement)

South Asia

68 Resolving the Sri Lankan Conflict

(Robert A. Peck)

United Nations

71 Human Rights in Cuba
(Vernon A. Walters)

Western Hemisphere

75 Development of U.S. -Nicaragua
Policy (Elliott Abrams,
Philip C. Habib)

82 Economic Assistance for Central
America (Message to the
Congress)

84 FY 1988 Assistance Requests for
Latin America and the Carib-
bean (Elliott Abrams)

90 Costa Rican Initiative (Elliott

Abrams)

Treaties

91 Current Actions

Press Releases

93 Department of State

Publications

94 Foreign Relations Volume

Released

Index

President Reagan held a meeting on March 3, 1987, with the National Security Council
staff where he outlined the role of the staff in the formation of national security policy.

(White House photo by Pete S

"HE PRESIDENT

'an Arms and Contra Aid Controversy

President Reagan 's televised address
Ithe nation on March 4, 1987. 1

e spoken to you from this historic
ice on many occasions and about
ny things. The power of the Presi-
cy is often thought to reside within
s Oval Office. Yet it doesn't rest here;
ests in you, the American people, and
your trust. Your trust is what gives a
esident his powers of leadership and
I personal strength, and it's what I
mt to talk to you about this evening.

For the past 3 months, I've been
ent on the revelations about Iran. And
u must have been thinking: "Well,
ly doesn't he tell us what's happening?
hy doesn't he just speak to us as he
s in the past when we've faced
mbles or tragedies?" Others of you, I
ess, were thinking: "What's he doing
ling out in the White House?" Well,
3 reason I haven't spoken to you
fore now is this: You deserve the
ith. And as frustrating as the waiting
s been, I felt it was improper to come
you with sketchy reports, or possibly
en erroneous statements, which would
2n have to be corrected, creating even
ire doubt and confusion. There's been
ough of that.

I've paid a price for my silence in
-ms of your trust and confidence. But
J'e had to wait, as you have, for the
implete story. That's why I appointed
I nbassador David Abshire as my special
i unsellor to help get out the thousands
i documents to the various investiga-
! ms. And I appointed a special review
i ard, the Tower board, which took on
f e chore of pulling the truth together
I r me and getting to the bottom of
ings. It has now issued its findings.

I'm often accused of being an opti-
ist, and it's true I had to hunt pretty
ird to find any good news in the
iard's report. As you know, it's well-
. ocked with criticisms, which I'll discuss
| a moment; but I was very relieved to
|i ad this sentence: "... the Board is
i mvinced that the President does indeed
pant the full story to be told." And that
ill continue to be my pledge to you as
le other investigations go forward.

I want to thank the members of the
iinel: former Senator John Tower,
•;>rmer Secretary of State Edmund
lluskie, and former national security
•dviser Brent Scowcrofr. They have
lone the nation, as well as me person-
lly, a great service by submitting a
sport of such integrity and depth. They

have my genuine and enduring
gratitude.

I've studied the board's report. Its
findings are honest, convincing, and
highly critical; and I accept them. And
tonight I want to share with you my
thoughts on these findings and report to
you on the actions I'm taking to imple-
ment the board's recommendations.

First, let me say I take full responsi-
bility for my own actions and for those
of my Administration. As angry as I may
be about activities taken without my
knowledge, I am still accountable for
those activities. As disappointed as I
may be in some who served me, I'm still
the one who must answer to the Ameri-
can people for this behavior. And as per-
sonally distasteful as I find secret bank
accounts and diverted funds— well, as
the navy would say, this happened on my
watch.

Let's start with the part that is the
most controversial. A few months ago I
told the American people I did not trade
arms for hostages. My heart and my best
intentions still tell me that's true, but
the facts and the evidence tell me it is
not. As the Tower board reported, what
began as a strategic opening to Iran
deteriorated, in its implementation, into
trading arms for hostages. This runs
counter to my own beliefs, to Adminis-
tration policy, and to the original
strategy we had in mind. There are
reasons why it happened, but no
excuses. It was a mistake.

I undertook the original Iran initia-
tive in order to develop relations with
those who might assume leadership in a
post-Khomeini government. It's clear
from the board's report, however, that I
let my personal concern for the hostages
spill over into the geopolitical strategy of
reaching out to Iran. I asked so many
questions about the hostages' welfare
that I didn't ask enough about the
specifics of the total Iran plan.

Let me say to the hostage families:
We have not given up. We never will.
And I promise you we'll use every legiti-
mate means to free your loved ones from
captivity. But I must also caution that
those Americans who freely remain in
such dangerous areas must know that
they're responsible for their own safety.

Now, another major aspect of the
board's findings regards the transfer of
funds to the Nicaraguan contras. The
Tower board wasn't able to find out
what happened to this money, so the
facts here will be left to the continuing

investigations of the court-appointed
independent counsel and the two con-
gressional investigating committees. I'm
confident the truth will come out about
this matter, as well. As I told the Tower
board, I didn't know about any diversion
of funds to the contras. But as Presi-
dent, I cannot escape responsibility.

Much has been said about my
management style, a style that's worked
successfully for me during 8 years as
Governor of California and for most of
my Presidency. The way I work is to
identify the problem, find the right indi-
viduals to do the job, and then let them
go to it. I've found this invariably brings
out the best in people. They seem to rise
to their full capability, and in the long
run you get more done.

When it came to managing the NSC
[National Security Council] staff, let's
face it, my style didn't match its
previous track record. I've already
begun correcting this. As a start, yester-
day I met with the entire professional
staff of the National Security Council. I
defined for them the values I want to
guide the national security policies of
this country. I told them that I wanted a
policy that was as justifiable and under-
standable in public as it was in secret. I
wanted a policy that reflected the will of
the Congress as well as of the White
House. And I told them that there'll be
no more freelancing by individuals when
it comes to our national security.

You've heard a lot about the staff of
the National Security Council in recent
months. Well, I can tell you, they are
good and dedicated government
employees, who put in long hours for the
nation's benefit. They are eager and anx-
ious to serve their country.

One thing still upsetting me,
however, is that no one kept proper
records of meetings or decisions. This
led to my failure to recollect whether I
approved an arms shipment before or
after the fact. I did approve it; I just
can't say specifically when. Well, rest
assured, there's plenty of recordkeeping
now going on at 1600 Pennsylvania
Avenue.

For nearly a week now, I've been
studying the board's report. I want the
American people to know that this
wrenching ordeal of recent months has
not been in vain. I endorse every one of
the Tower board's recommendations. In
fact, I'm going beyond its recommenda-
tions so as to put the house in even
better order.

I'm taking action in three basic
areas: personnel, national security
policy, and the process for making sure
that the system works.

/lay 1987

THE PRESIDENT

First, personnel— I've brought in an
accomplished and highly respected new
team here at the White House. They
bring new blood, new energy, and new
credibility and experience.

Former Senator Howard Baker, my
new Chief of Staff, possesses a breadth
of legislative and foreign affairs skills
that's impossible to match. I'm hopeful
that his experience as minority and
majority leader of the Senate can help us
forge a new partnership with the Con-
gress, especially on foreign and national
security policies. I'm genuinely honored
that he's given up his own presidential
aspirations to serve the country as my
Chief of Staff.

Frank Carlucci, my new national
security adviser, is respected for his
experience in government and trusted
for his judgment and counsel. Under
him, the NSC staff is being rebuilt with
proper management discipline. Already,
almost half the NSC professional staff is
comprised of new people.

Yesterday I nominated William
Webster, a man of sterling reputation, to
be Director of the Central Intelligence
Agency. Mr. Webster has served as
Director of the FBI and as a U.S.
District Court judge. He understands the
meaning of "rule of law."

So that his knowledge of national
security matters can be available to me
on a continuing basis, I will also appoint
John Tower to serve as a member of my
Foreign Intelligence Advisory Board. I
am considering other changes in person-
nel, and I'll move more furniture, as I
see fit, in the weeks and months ahead.

Second, in the area of national
security policy, I have ordered the NSC
to begin a comprehensive review of all
covert operations. I have also directed
that any covert activity be in support of
clear policy objectives and in compliance
with American values. I expect a covert
policy that if Americans saw it on the
front page of their newspaper, they'd
say, "That makes sense." I have had
issued a directive prohibiting the NSC
staff itself from undertaking covert
operations— no ifs, ands, or buts. I have
asked Vice President Bush to reconvene
his task force on terrorism to review our
terrorist policy in light of the events that
have occurred.

Third, in terms of the process of
reaching national security decisions, I
am adopting in total the Tower report's
model of how the NSC process and staff
should work. I am directing Mr. Carlucci
to take the necessary steps to make that
happen. He will report back to me on
further reforms that might be needed.

I've created the post of NSC legal
adviser to assure a greater sensitivity
to matters of law.

I am also determined to make the
congressional oversight process work.
Proper procedures for consultation with
the Congress will be followed, not only
in letter but in spirit. Before the end of
March, I will report to the Congress on
all the steps I've taken in line with the
Tower board's conclusions.

Now, what should happen when you
make a mistake is this: You take your
knocks, you learn your lessons, and then
you move on. That's the healthiest way
to deal with a problem. This in no way
diminishes the importance of the other
continuing investigations, but the busi-
ness of our country and our people must
proceed. I've gotten this message from

Republicans and Democrats in Congrc
from allies around the world, and— if
we're reading the signals right— even
from the Soviets. And of course, I've
heard the message from you, the
American people.

You know, by the time you reach i
age, you've made plenty of mistakes.
And if you've lived your life properly-
so, you learn. You put things in perspt |j
tive. You pull your energies together.
You change. You go forward.

My fellow Americans, I have a gre
deal that I want to accomplish with yo
and for you over the next 2 years. An(
the Lord willing, that's exactly what I
intend to do.

■;■•

'Text from Weekly Compilation of
Presidential Documents of Mar. 9, 1987.

News Conference of March 19

President Reagan held a news con-
ference on March 19, 1987. 1

Q. Terry Anderson was taken cap-
tive in Lebanon 2 years and 4 days ago,
and today there are 8 Americans held
hostage there. How has the Iran-
contra affair complicated your efforts
to win the release of the hostages?

A. That's rather hard to tell right
now. Indeed, the affair did get some
hostages released, and if it hadn't
leaked, I don't know whether the word
of what we were doing there— I don't
know whether we would have gotten
more out. As the day that the informa-
tion leaked and everything went public,
it was my understanding that there
were— the other two were due out in the
next few days. But we're going to con-
tinue to explore, as we always have,
every opportunity to try and get them
out.

I happen to believe that when an
American citizen any place in the world
is unjustly denied their constitutional
rights to life, liberty, and the pursuit of
happiness, it is the responsibility of this
government to restore those rights.

Q. Former President Carter will be
in Syria this weekend. Is he carrying a
message from you about the hostages?

A. No.

Q. Is he making any effort in that
regard as far as you know?

A. I don't know. I wouldn't be sur-
prised if he— if he was, but— and I'd be
grateful if he did.

Q. There have been reports that
you were told, directly or indirectly,
least twice that the contra* were
benefiting from the Iran arms sale. 1
that true or were you deceived and li
to by Admiral Poindexter [former
national security adviser Rear Adm.
John M. Poindexter] and Colonel
North [Lieut. Col. Oliver L. North, a
former aide on the National Security
Council staff]? And I'd like to follow
up.

A. Let me just say, no, that is not
true at all. When I went on the air rigl
after the news broke and told what we
had been doing and how we— what our
policy was in getting into this affair, I
did not know at that time that there w
any money involved. I only knew that i
had received our $12 million for the
weapons which we had agreed to sell.
Then, a little later, when the attorney
general told me that he had come upon
something that indicated that there wa
something to do with money in Swiss
bank accounts— and I couldn't imagine
what it could be, because as I say, we
got our money— but I said that I thougl
we ought to go public with that again s>
that you had all the information that wi
had and not wait and have someone
uncover this and think we were trying i
cover up or something.

So that was late on Monday after-
noon. Tuesday morning, the first thing,
we went before the joint leadership of
the Congress and told them what we'd
learned, that all we'd learned was that
there was evidently some money having
to do with this whole arrangement over

Department of State Bulleti

THE PRESIDENT

re and involving some Swiss bank
aunts. And then I came into the press
m to all of you and told you.

Q. Is it possible that two military
icers who are trained to obey orders
Ibbed power, made major foreign
licy moves, didn't tell you when you
Ire briefed every day on intelligence?
did they think they were doing your
Iding?

D A. I don't know. I only know that
■t's why I have said repeatedly that I
Sit to find out, I want to get to the
Htom of this and find out all that has
Ipened. And so far, I've told you all
It I know and, you know, the truth of

I matter is, for quite some long time,
a:hat you knew was what I'd told you.

j Q. Robert McFarlane, who was
In your national security adviser,
is that in August of 1985, he called
9 on the telephone and asked if you
Hiited to give the green light to
[i lei to send arms to Iran and have
jm replenished from U.S. stocks,
4 I that you said you did. And he said

I I he reminded you in that conversa-
1 1 that your Secretaries of State and
Q 'ense were against it and you said

M understood that, but you explained
■ lim the reasons why you wanted to
i horize it. Do you have no memory
i hat, whatsoever?

A. All I know is that I was never—
a memory didn't fail me on the fact
tl 1 1 had agreed to this thing. The only
tl lg I could not recall was at what
■■ it was I asked. And as a result of
tl t and not being able to recall when I
g e this permission, we now have quite
II astern installed of people taking notes
ii .11 our meetings and all our doings.

[\ Q. If you don't recall, when Ben-
j: lin Weir— Reverend Weir was
r eased in mid-September of that
f r, why did you think they had
r eased him if you couldn't recall that
y i had authorized Israel to do that?

A. No. As I say, I'm aware— I can't
r lember just when, in all the calls and
netings and so forth, this was pre-
ssed and when I gave the go ahead.
E t this was a thing in which the Israelis
vre willing to sell weaponry— mainly
1 W [tube-launched, optically tracked,
^•e-guided antitank] missiles— and
v nted to know if they did, if we would
fc-ee to sell them replacements when
:- i if they needed it.

Q. —the day before he was
l eased?

A. I know that I agreed to that and
i e heard— and there are other people
' it don't remember either who were

present at meetings. One of them was
Bud [McFarlane] and what his memory
was— I don't think it was a phone call.
He has described it as a visit to the
hospital where I was after surgery. But
others who were present, they didn't
remember that conversation. But I know
that it must have come up, and I must
have verbally given the okay.

Q. You said that in your heart you
still believe that it wasn't an arms-for-
hostage deal, but that the weight of
the evidence presented by the Tower
commission convinced you that it was.
In your heart do you now believe that
it was an arms-for-hostages deal from
the beginning, as the Tower commis-
sion said, and that the policy was
flawed?

A. But it could be that the policy
was flawed in that it did deteriorate into
what I myself and when I went on the
air recently said— was arms-for-hostages
[deal]. But let me just as briefly as I can
take you through the steps which I did
from the very beginning.

We had, by way of Israel, a report
that there were responsible people, some
from the Government of Iran but not
necessarily in the inner circle of— with
Khomeini, who wanted to see if they
could not open a dialogue with represen-
tatives of the United States that would
lead to a better understanding— and I'm
sure that they had in mind a future
government of Iran— that we could have
the kind of relationship that we'd had
once earlier. I thought, because our
policy had always been based on trying
to restore a relationship with a country
that is very important strategically, and
also behind the scenes to try and get an
end to that war— an end with no victor,
no vanquished, both countries retiring to
their own boundaries and so forth. So, I
wasn't going to miss that opportunity.
And I approved our going ahead.

One of the first things brought up
in the meeting with those who were
representing us was that these people
said that they, for two reasons, needed
something like— and they mentioned the
arms sales. It came from them, not us.
They said, one, for their own prestige it
would give them a standing with the
people that they would have to be deal-
ing with in the future, including the
military leaders. And, at the same time,
it would assure them that the people
they were dealing with did have access
to our government at the highest levels
and they could trust them to deal. And,
so, our answer to that was that we had a
policy of not doing business with a coun-
try that supported terrorism, and Iran

was on that list. Well, they made quite a
pitch that they, too, were opposed to
terrorism and that they had even done
some things counter to terrorism-
terrorist activities and so forth. Well,
our reply to them was, there is a very
practical way in which you can prove
that, and that is, help the— use your
influence to get the hostages out. Now, I
have never believed, and I don't believe
now, that Iran can give orders to the
Hezbollah, but there is a philosophical
relationship there that we thought they
might be able to be persuasive and
they've indicated that that was true.
Now, with no further information than
that, until I read the Tower commission
report, after appointing the Tower com-
mission to get to the bottom of this thing
and see what was going on, then I found
that the strategy talks had disappeared
completely, and led by the Iranians, the
conversation was totally arms-for-
hostages. So I don't see where I could
say now that isn't what it degenerated
into.

Q. They faulted you in the Tower
commission report for caring too much
about the hostages. If you had it to do
all over again, would you do it again?

A. No, I would not go down that
same road again. I will keep my eyes
open for any opportunity again for
improving relations. And we will con-
tinue to explore every legitimate means
of getting our hostages back for the
reason that I explained earlier.

Q. Iran and Nicaragua are impor-
tant up our way in Buffalo, but more
important is Canada because we are
right there on the border, and the
number one irritant in U.S. -Canadian
relations is acid rain. Now, you're
going up there next month, and yester-
day you announced a $2,500 million,
5-year program, but many Canadians
and environmental groups in this coun-
try feel you haven't gone far enough.
They feel that the U.S. Government
should set standards for these emis-
sions that cause acid rain. Is your
Administration giving any considera-
tion to the establishment of standards?

A. Yes, let me say, that we've not
just been sitting here holding back or
anything, we have that joint commission
with them to get at this problem. We
have found out that the further we've
gone, the more complex the issue of the
source of acid rain becomes. And so
what we've been trying to do is avoid
going down some avenue that would
disappoint us and we wouldn't really
solve the problem but we would have
wasted our resources. We've made some

iiy 1987

THE PRESIDENT

progress in learning things that can be
done and we were ready to make this
move, there are others probably yet to
come. We're still investigating this.

Q. Another point they bring up is
that the Environment Protection
Agency isn't sufficiently involved in
your new initiative. Do you plan to
bring them into it in full force?

A. Everybody will be brought into
this thing to find out how we can solve
it. But at the moment, too, we're dealing
with the private sector, with the indus-
tries, and so forth that would be involved
in this.

Q. At your last news conference
4 months ago, you said that Israel has
nothing to — United States had nothing
to do with Israeli arms shipments to
Iran when you knew that that was not
true. Why did you say that?

A. I'm glad you asked that, because
I've read at great length references to
that, and heard them on the air. I'm glad
to explain. When I left here after that
press conference and went back there,
and our people were waiting back there
and had been watching on the monitor
what was going on, they told me what I
had said. And it was evidently just a
misstatement on my part. I did not know
that I had said it in such a way as to
seemingly deny Israel's participation.
And when they told me this, and when I
finished bumping my head, I said to
them, "Quick, write down a correction of
this." I didn't realize that in there,
maybe I talked too long. I said, "I didn't
realize that I had said that or given that
impression. We've got to get this mes-
sage to all of you before you went to
work on your stories."

So it was just a misstatement that I
didn't realize that I had made.

Q. But the fact is that you were
asked it four times in that news con-
ference, and you made this inadvertent
statement four times you were specifi-
cally asked about Israel's role. And
during that early period, it now turns
out that there were a series of state-
ments you made that were misleading.
One of the first statements was, you
said that the whole story that came out
of the Mideast was without
foundation.

A. No. That wasn't at the press
conference. That was on November 6th,
when you were shouting questions at
me.

Q. Well—

A. And at that— well, right. But
then, what I was trying to do, and I
think some of you will recall this, I was
trying to plead with all of you, hoping

that this leak that came from that
weekly paper in Beirut could be corral-
led, because I wanted to explain that we
didn't know— what the lives of the peo-
ple we'd be dealing with would be endan-
gered, and certainly our hostages could
be in danger. And so this was all I was
trying to say, and I remember saying,
"Please— stop speculating and stop ask-
ing questions." I didn't know how far we
could go before we could get someone
killed. And when David Jacobsen came
here and met with you in the Rose Gar-
den, he repeated that without knowing
that I had said it. He said the same
thing, and quite passionately, that you
could get some people killed if we kept
on with that story.

Q. Do you feel an obligation
always to tell the truth to the
American people? Or sometimes do you
feel you may have to mislead, as in
that case, saying it's without founda-
tion for a higher diplomatic purpose?

A. No, there are things in which
I— there are times in which I think you
can't answer because of national security
or other people's security. But no, I'm
not— I'm not going to tell falsehoods to
the American people. I'll leave that to
others.

Q. Speaking to young people in
your re-election campaign in 1984, you
referred to government as a sacred
trust and you said we're going to keep
this trust. The Tower report says that
some of your officials in your Adminis-
tration made untruthful statements,
and you've acknowledged here that it
became a trade of arms for hostages.
Do you feel that you kept your promise
that you made in that campaign to the
young people and that your govern-
ment has?

A. Yes, I do. And from the very
first, I told you all everything I know
about this situation. I am still waiting to
find out the source of extra money, the
bank accounts, and where that extra
money went. And that's why I appointed
the Tower commission to get to the bot-
tom of this and a special prosecutor. You
see, I'm old fashioned— I call these inde-
pendent counsels— I still call them
special prosecutors.

Q. If I could follow, are you
distressed that even your own polls
show that a majority of American peo-
ple, including many who voted for you,
believe that you're not telling the full
truth on the Iran-conrra affair?

A. In view of what they've been
reading and hearing for all these several
months— I can understand why they
might think that.

■

Q. In view of what you told the;
Tower board, and what they con-
cluded — that you had difficulty recs
ing the decision and the timing of t
decision to send the arms to Iran — i
at all conceivable that you may also
have forgotten being told about the
diversion of funds to the contras?

A. Oh, no. You would have hear
me from— without opening the door t
the office if I had been told that at ar
time. No. And I still do not have the
answer to that money. The only thin£
that I can see is that somebody in the
interplay of transporting the weapon:
must have put an additional price on
them. We asked for $12 million, whic
was the cost— no profit on those
weapons— and we got our $12 million
back. And it was a complete surprise
me to discover that there was any ad
tional money— and this, I think is the
thing— we're still waiting for that to 1
explained.

Q. If I could follow in a related
element, then — Mr. North is quoted
the Tower report in a memo he wro
as saying the President obviously
knows why — he has been meeting v
select people to thank them for thei
support for democracy in Central
America. Were you aware that such
meetings that you attended were be
used to solicit funds from private
citizens in the United States for Ce
tral America for the contras?

A. I knew that there were many
people privately giving money to thin
of that kind— in the country here— bu
the people I met with— and I subsequ
ly found out that some of them were
doing this. But when I met with then"
met with them to thank them because
they had raised money to put spot ad:
television in favor of the contras in ai
effort to try and influence Congress t
continue giving aid. And I thought th;
was worth a thanks. I've gone to the
public many times since I've been her
to get the public to help put the press
on the Congress for us to get some
worthwhile cause.

Q. You said that Senator Sam
Nunn is wrong in arguing that the
record does not support a broad int<
pretation of the Antiballistic Missih
Treaty (ABM). Why is he wrong?

A. You know, I thought somebod
might ask about that, and I just broug
something in here with me. Marshal
Grechko, Soviet minister of defense ir
1972, proclaimed about the ABM Tree
"It imposes no limitations on the
performance, the research, and experi
mental work aimed at resolving the

Department of State Bulkp

THE PRESIDENT

pblem of defending the country

ainst nuclear missile attack."
Now, when some time ago we real-

d that there was this belief that the
M Treaty had an interpretation that
diuld be more liberal than we had been
ting, it still didn't change anything
h SDI [Strategic Defense Initiative]

:ause there was no need for us to go
Ijyond what we were doing. But as we
^bgressed and developed SDI, we
talized we were coming to a time in
Wich that narrow interpretation of the
JBM Treaty could interfere with and
■Jt us back in what we were trying to
g:omplish. And this is when we took a
|iik at this broader interpretation.
I And I know that Mr. Sofaer [Legal
ilviser Abraham D. Sofaer] over in the
late Department is looking into this,
jd he believes that there is legally a
IJire liberal interpretation. Now, we're
Station of laws, and we want to stay
♦thin the law. But at the same time, we
lieve that the Soviet Union has been
ling even beyond a liberal interpreta-
ln of the treaty. They've been going
l/ond the treaty in some of the things
hy are doing.

I Q. You arrived at this broad inter-
ptation quite a while ago. How soon
1 you intend to implement it? How
I >n do you believe you are going to be
I'Wing down the Strategic Defense
1 tiative?

i A. Actually, we haven't made a
pision because we're still operating
t ;hin the narrow limits and have no
\ ison to go outside them as yet, and it
J 1 be some time before we do. But
I 're having this— we're all of us study-
I ; this, and we haven't arrived at a
J :ision or set a date yet.

Q. The Tower report said that the
I ms deal with Iran should never have
I en made in the first place. You have
t id that you accept the Tower com-
I ssion report.

I A. Yes.
Q. And yet your friends say that
private you still have a deep feeling
it you do not feel it was wrong to
1 arms in the beginning. I want to
1 ow, in your heart do you feel that
Ju were right or were you wrong in
tiling arms to Iran?

A. We had quite a debate, and it
fits true that two of our Cabinet mem-
Hrs were very much on the other side.
Ipd it turned out they were right
jjcause, as I say, it did deteriorate into
flat.

But what my position was, and
Hill is, you are faced with some kidnap-
•Irs— they have kidnapped some of our

citizens. Now, you cannot do business
with them. There's no way that you can
discuss ransom or do them any favor
which makes taking hostages profitable.
But suddenly, an opportunity to get into
a conversation with a third party— and
you find that that third party maybe can
do something you can't do, that they can
have an influence on these people over
here, these kidnappers, and get your
people free— I did not see that as trading
anything with the kidnappers. They
didn't get any advantage out of this;
they didn't show any profit on what was
going on. And the place where I was
wrong was in not realizing that once
that pressure was put on from the other
side— and it did stem from the Iranian
representatives— they saw an opportun-
ity, they thought, to start bargaining for
more weapons than that, more or less,
token amount that we had agreed to sell,
and to put the price at varying numbers
of hostages.

So I still believe that if someone in
my family was kidnapped and I went out
and hired someone that I thought could
get that person safely home, that would
not be engaging in ransom of the victim.

Q. If I could follow, you're still
arguing that somehow this event
deteriorated, it went awry as it went
along. I want to know whether you
think it was wrong or right in the
beginning.

A. If I hadn't thought it was right
in the beginning we never would have
started that. It was an opportunity
presented by people evidently of some
substance in the Iranian Government to
open up a channel to probably better
relations between our two countries,
maybe even leading to more influence in
getting this terrible war ended there in
the Middle East. And they, them-
selves—there was never— when we
entered into this, there wasn't any
thought of hostages in this particular
thing, they'd never been mentioned. It
was only when they put in this request,
as I've explained, for arms and we had
to explain that we didn't do business
with people that supported terrorism,
that they offered to prove that they
weren't supportive of terrorism, either.

And this is how we weren't going to
overlook an opportunity if we could get
those hostages back. And we're not
going to overlook an opportunity in the
future. But we're not going to try the
same thing again, because we see how it
worked.

Q. Setting aside what the Iran
initiative turned into, as you were set-
ting the policy in motion, did you give

consideration to how our Arab friends
in the region would think about the
United States sending arms to their
mortal enemy?

A. I think we have a very good
relationship— better than we've had in
many, many decades— with the countries
in the Middle East. And I think that we
have proven our friendship for them to
the place that they could understand
what we were doing. But I also think it
ought to be noted that countries in the
Middle East, countries in Europe, coun-
tries in Asia, and the communist bloc,
have been selling arms to both sides
in this war for the last few years and
they've been selling about almost four
times as much to Iraq as they have to
Iran. And the biggest amount of sales is
coming from the communist bloc to both
countries. So, what I was sure of was
that we were not affecting the balance-
military balance between the two coun-
tries with the small amount that we
were going to sell.

Q. You've said that Defense
Secretary Weinberger and Secretary
Shultz opposed the policy, that you
waived their views and decided to go
ahead anyway. Given all the other con-
cerns that you have to deal with as
President, how much thought did you
give to this policy? Was it a casual
thing or did you give it quite an exten-
sive going over before you embraced
the policy?

A. The only thing I've done casually
since I've been here in these 6 years is
hold a press conference.

Q. In view of Secretary Harring-
ton's energy security study that he
completed this week, how can we deal
with our overreliance on insecure
foreign oil?

A. This is a problem that we are
studying and I'm expecting some reports
momentarily on this. We have to study
this. This is why we increased the strate-
gic reserve since we've been here. But
we have to do more than that. And I
have also asked Congress already for
some acts that I think would improve the
situation here domestically. It involves
elimination of the windfall profits tax, it
involves the deregulation of natural gas,
some other things that we've already
asked Congress for. So far, we haven't
gotten them as yet.

Q. What concerns you most about
the decreasing U.S. oil production
and the finding that it could threaten
national security, based on that
report?

A. It certainly would be in— if we
were faced with a crisis. And what has

I ay 1987

THE SECRETARY

happened to us is that here in our stand-
ard of living and all, they can't find and
produce oil for the price that it has gone
back down to. It was only the high price
that could keep them in business.

Q. Long before the diversion of
funds to the contras, the Tower board
has documented 2 years of an exten-
sive military support for the contras at
a time when Congress ruled that to be
illegal — air strips, phoney corpora-
tions, tax exempt foundations — all
directed by Oliver North and John
Poindexter, and before them Robert
McFarlane, out of the White House.
And — the question is, how could all
this be taking place — millions and
millions of dollars — without you hav-
ing known about it, especially at a
time when you were calling the con-
tras the moral equivalent of our
Founding Fathers?

A. I don't believe— I was aware that
there are private groups and private
individuals in this country— I don't
believe it was counter to our law. But
these people were voluntarily offering
help, just as we've seen in the past. We
had a thing called the Abraham Lincoln
Brigade in Spain in the Civil War there.
And I don't know how much that would
amount to. I don't know whether it's
enough to keep them in business or not.
But I do know that it is absolutely vital
that we not back away from this. We've
had some experiences in our country
where the Congress has turned on a
president. Angola was the most recent
example, perhaps— when in Angola,
when— being a colony, and the civil war
broke out there, and there was a com-
munist faction, and there was a group
that wanted democracy. And an Ameri-
can president asked Congress just for
money. No blood, just money to help the
democratic people of Angola have a dem-
ocratic government. They don't have a
democratic government, they have a
communist government now, and there
are 37,000 Cuban soldiers fighting their
battle.

Q. But sir, if you were truly
unaware of the millions of dollars in
government money and government
operations that North and Poindexter
were directing to the contras, what
does this — respectfully, what does this
say about your management style? You
have said in your speech that your
management style in the confra-Iran
affair did not match your previous
track record. The Tower board
criticized your management style. If
you were unaware of these things and

forgot when you actually approved the
Iranian arms sale, what does it say
about the way you've been managing
the presidency?

A. I've been reading a great deal
about my management style. I think that
most people in business will agree that it
is a proper management style. You get
the best people you can to do a job, then
you don't hang over their shoulder criti-
cizing everything they do or picking at
them on how they're doing it. You set
the policy and I set the policy in this
Administration, and they are then to
implement it. And the only time you
move is if the evidence is incontrovert-
ible that they are not following policy or
they have gone down a road in which
they're not achieving what we want.
And I think that that is a good manage-
ment policy.

Q. Would you —

A. I'm not going to comment no\
because all that you've mentioned are
involved in investigations and I, more
than anyone, want these investigation
to proceed so that I know, and will
know, what has been going on that ha
been kept from me in various covert
operations.

Q. You didn't answer the quest
on North or Poindexter. Did they
deceive you? You didn't answer
whether Poindexter or North deceiv
you.

A. They just didn't tell me what
was going on.

'President's opening statement omitte
here (Weekly Compilation of Presidential
Documents of Mar. 23, 1987). ■

Secretary Visits Asia

Secretary Shultz departed
Washington, D.C., February 26, 1987, to
visit Hong Kong (February 27-March 1),
the People 's Republic of China (March 1-6),
the Republic of Korea (March 6), and
Japan (March 6-7). He returned to the
United States on March 7.

Following are the Secretary 's
address before the Dalian Management
Training Center on March 3, remarks at
a banquet in Shanghai on March 5, and
excerpts from statements in Seoul and
Tokyo.

DALIAN,
MAR. 3, 1987'

Thank you for your warm welcome, and
I'm very pleased to have the opportunity
to be here. It's a double pleasure. First,
I've been looking forward to this oppor-
tunity to visit your center. Since its first
management program in 1980, it has
come to serve as an important example
of a constructive, Sino- American
cooperation and friendship. Second, as a
professor, I welcome this chance to
return to the academic world, even if
only for a day.

And I might say that in the United
States, at a university from which I had
a degree and taught— M.I. T. [Massachu-
setts Institute of Technology], known for
its engineering— the first advanced
management class that I taught in, it
was almost 40 years ago, and I've been
meeting with advanced management

students practically every year since
then. Somebody tell me I don't look
that old.

At any rate, it's good to meet witl
students whose numbers include so
many who already have considerable
experience as managers and admin-
istrators. You are well poised to gain
greatest benefit from your advanced
study of management practices. All o!
you have been specially chosen for stt
here at the Dalian Management Train
Center. You are to be congratulated f
that honor; but it is also an honor bea
ing heavy responsibilities. What you
learn here at Dalian will enhance youi
proven managerial capabilities and
enable you to play an even more impo
tant leadership role in helping your
nation meet the vast challenges of
economic modernization.

For our part, the people of the
United States are both pleased and
proud to be able to contribute to Chin;
development efforts through this spec
management training program. The
work of the American teachers here ai
the center is one more concrete
manifestation of our interest in
strengthening Sino-American coopera-
tion and in seeing China further advan
its economic modernization.

Challenges of the Future

Today, I want to discuss certain prob-
lems of national growth and develop-
ment in the midst of increasingly

THE SECRETARY

jatic economic and technological
.lges taking place on a global scale.
Our world is in the midst of an
■iting scientific revolution— one whose
:ial, economic, and political conse-
jnces are only beginning to be felt.
ne and space are contracting as
tantaneous electronic communications
,ke business, politics, and culture truly
ibal for the first time. And as a result
new information technologies, pre-
ius measures of economic develop-
:nt— and, by extension, military and
itical strength— are fast becoming
tdated.
As we look to the year 2000 and
irond, the future competitiveness of
tions will be shaped not simply by
>ir concentrations of labor and natural
iources but, more and more, by how
ely and effectively they are able to
i knowledge and information. And
like oil or mineral wealth, information
i resource that is not depleted over
le but, rather, increases through use
i sharing.
But though these changes offer our
)ples tremendous promise, the global
/ironment that they are reshaping is
o bringing new challenges. More than
jr before, the economic well-being of
nations is dependent upon their abil-
to adapt and compete within an open
i growing world economy. In contrast
;h previous decades, closed national
.rkets, no matter how big, are no
1 ger large enough to ensure a com-
yjritive and prosperous economy. In this
J w information age, any nation which
1 ;ks to remain apart from the world
I momy— and to restrict the free flow of
j jds, services, investments, and ideas
I and out of its borders— will be able to
i so only at tremendous sacrifice.
. bsed societies will fall behind and
i ther.

Over the coming decade, this will be
1 rticularly true for those nations seek-
if r development and modernization
1 "ough greater economic growth. That

■ owth will best flow not from central

] mning but from the creative energies

■ leased by competition in the market-
]ice. In previous years, the exploitation

pj natural resources, or the implementa-
l»n of a strategy focusing on traditional
Iinufactured items, could provide for
i' port-led growth for many such coun-
ties. But these tactics are growing less
lid less effective in ensuring the com-
U^titive participation of these nations in
Hday's increasingly crowded global

Market. This is particularly so as
, ijformation-based services and new
i chnologies rapidly become the leading

ilge of the world economy.

The Importance of Open Doors

As the leaders of China and the United
States confront the problems of how to
ensure greater security and prosperity
for their peoples, we both face important
economic decisions. How should our
respective economies take full advantage
of the changes in the world brought
about by new technologies? How can we
ensure continuing economic dynamism
and high growth? And how can we do so
in a manner that preserves and expands
an open international trade system and,
thus, helps to secure a more peaceful
and prosperous world for all? Moreover,
how our two countries respond to these
problems will affect our relationship.

In suggesting a general answer to
these issues, I will borrow the central
metaphor that Chairman Deng used in
his speech of October 6, 1984. At that
time, he noted that: "China cannot
rebuild itself with its doors closed to the
outside, and it cannot develop in isola-
tion from the rest of the world."

For China, for the United States,
and for other nations as well, this new
information age will require, above all
else, that we continue to open our doors
to one another. When such doors are
open— when people, goods, and ideas can
flow freely between us— both Chinese
and Americans can learn from each
other. Through such openness, societies
are better able to stimulate and to take
advantage of the inherent dynamism and
creativity of their peoples.

Managing Change and
Encouraging Economic Development

Economic change in this new informa-
tion age represents both new difficulties
and new opportunities. Adjusting to
change— managing its effects to the
greatest long-term benefit— can be a
painful but necessary process.

In America, high-technology indus-
tries and financial services have
emerged as new engines of our economic
growth. Yet, many of our traditional
manufacturing sectors face serious
challenges from increasingly competitive
trading partners abroad. As a policy
response, the United States has sought
to reduce the role of government
intervention in the workings of our
economy. We have taken steps to
encourage even greater opportunities for
individual initiative and entrepreneur-
ship with the marketplace. We have
done so because we see economic
freedom as a powerful stimulus to
economic dynamism, adjustment, and
innovation.

In our international policies, we have
worked to preserve and expand liberal-
ized trade. We have continued to support
growth in other countries through our
assistance programs and through par-
ticipation in multilateral development
banks. We have encouraged our private
sector to help other countries through
commercial lending and investment.
Here in China, for instance, our trade
and development program has spent
$12 million since 1982 for feasibility
studies designed to involve American
companies in your country's large-scale
development projects, as well as in
technical seminars and training
programs.

China's current economic situation is
quite different from that of the United
States, but its future role in the world
economy is potentially very great.

My visit is part of an
ongoing pattern of frequent
consultations with the
Government of the Republic
of Korea. I value the oppor-
tunity to hear . . . the obser-
vations and views of your
leaders on matters affecting
our mutual interests. In this
spirit, I have discussed with
President Chun a range of
issues, including security
and tension reduction on the
Korean Peninsula, the contin-
uing economic prosperity of
both our nations, and the
process of political evolu-
tion. I have also reaffirmed
the unwavering U.S. commit-
ment to helping provide that
necessary security which will
enable the Korean people to
continue their work for
further economic and
political development.

Seoul, Korea
March 6, 1987

lay 1987

THE SECRETARY

Endowed with abundant material and
human resources, it has the promise to
become one of the world's major
economic powers. And consequently, its
economic development has tremendous
implications for the United States, for
Asia, and for other countries throughout
the world.

In recent years, under Chairman
Deng Xiaoping' s and Premier Zhao
Ziyang's farsighted leadership, China
has launched a bold program of economic
reform and modernization. The Ameri-
can people have applauded these efforts
at national modernization. We have been
impressed by the remarkable successes
that China's leaders have achieved
through their self-confident policy of
opening out to the world and facing
squarely the challenges of economic and
social reform. In a dramatic turnaround,
China, in recent years, has had to strug-
gle with the problem, not of too slow
growth but of too rapid development.

You here in Liaoning Province,
under the direction of Acting Governor
Li Changchun, have embarked on a
pioneering program of economic reform
using human, financial, and natural
resources more efficiently. Shenyang's
bond exchange, its leasing of enter-
prises, and bankruptcy law have
attracted attention because they are
pathfinding efforts to develop new solu-
tions to old problems.

The potential rewards for China of
these policies are very significant. As
Premier Zhao Ziyang noted in his recent
New Year's speech: "Opening to the
outside world and enlivening the
domestic economy are, in a nutshell, also
reforms. They have already enormously
benefited the whole country, and cer-
tainly will continue to benefit every one
of us even more substantially."

Naturally, China faces major prob-
lems as it strives for growth and
development. Much must be done to
strengthen China's transportation, com-
munications, and energy infrastructure.
Jobs must be created for great numbers
of young people coming into the job
market each year. And as China grows,
as living standards rise, the Chinese
people will desire greater variety and
improved quality in diet, clothing, and
housing. All of these factors will create
pressures on the Chinese economy to
increase national wealth and to enrich its
cultural and spiritual life.

Strengthening Our Relations
Through Economic Interchange

If these challenges are great, so, too, are
the energy and creativity of the Chinese

people. China now has the opportunity to
create its own unique solution to the
challenges of modernization— one which
combines distinctive Chinese strengths
and traditions with the exciting scien-
tific, commercial, and intellectual
changes at work in today's world.

The United States is prepared to join
with the Chinese people as they make
the most of this special opportunity. We
believe that such cooperation in support-
ing Chinese modernization efforts is in
the best interests of both our countries.
As President Reagan noted when he
spoke before a group of students at
Fudan University in 1984:

Your government's policy of forging
closer ties in the free exchange of knowledge
has not only enlivened your economy, it has
opened the way to a new convergence of
Chinese and American interests. You have
opened the door, and let me assure you that
ours is also open.

Our joint accomplishments since the
Shanghai communique of 15 years ago
provide a firm basis for such coopera-
tion. Since 1972, the overall relationship
between our two countries has matured.
Our dealings with each other, once nar-
row and restricted in scope, have now
broadened to include a whole range of
commercial, scientific, cultural, and
military matters. And this process is
continuing.

By working together, Chinese and
Americans have already nurtured a
growing bilateral economic relationship.
American firms have invested more than
$1.5 billion in China. Total American
investment is exceeded only by that
from Hong Kong and Macao. Our com-
panies have helped to develop offshore
oil and natural gas exploration, elec-
tronics, textile machinery, hotels, food
processing, and a variety of high-tech
enterprises. Some of our projects are
among the largest of their type in the
world.

And in turn, the United States has
rapidly become one of China's largest
and most important contemporary
markets for exports. Only 7 years ago,
Americans purchased under 2% of
China's exports. Our two-way trade was
about $1 billion. Today, we buy more
than 10% of all Chinese exports, and our
two-way trade has surpassed $8 billion
for the last 2 years.

But much more can and should be
done. The People's Republic and the
United States have only begun to tap
our rich potential for mutually beneficial
trade. An expanded exchange in goods,
services, technologies, and investments

will be important both to your country's 1
modernization effort and to my coun-
try's economic well-being.

For this potential to be fully realized i.
each of our countries will have to make 1 I
special effort. It will become increasingly I
important, for instance, for China to
diversify its exports to the United
States. It may be difficult for China to
move quickly beyond its current concen-
tration on textiles and petroleum-related
products, but this effort must be made.

And in turn— because trade, to be
most effective and advantageous, must
be a two-way street— China must also
continue to open up its own domestic
markets to our exports. This year, your
exports to us have increased by 24%.
But I am disappointed that our exports
to you have fallen off by 19%. I hope this
trend will soon be reversed.

For our part, Americans need to
learn more about China. To become
more competitive, American business-
men have to recognize the unique
requirements of the Chinese market.
American businessmen must be both
patient and imaginative, ready to take
full advantage of the opportunities
created by our joint efforts to open
markets.

Sino-American Economic Issues

As our economic relationship progresses
it is inevitable that our two countries
will face new and troubling issues. That
shouldn't be the cause for despair. After
all, if you have no relationship, you don't
have any problems. It's only when you
have a rich and growing relationship
that you see the problem that interaction
brings. But it does require that— in a
spirit of patience, flexibility, and good
will— our two countries continue to
make every effort to deal positively with
economic and commerical problems that
may divide us.

American companies want to par-
ticipate further in China's economic
development. And, therefore, we have
been pleased by the steps that China has
already taken to adjust its investment
environment to meet the concerns of
foreign investors. We believe this is a
move in the right direction that holds
promise for the future. I hope that your
government will consider additional
policy measures that will broaden the
types of companies given favorable
treatment and address the problems of
access to your domestic markets and the
remittance of profits.

Here in Dalian, one of China's most
successful open coastal cities, you have
already shown the determination to be

Department of State Bulletin

THE SECRETARY

■
-

ond to none in providing a hospitable
ate for foreign investment. I under-
nd that you have signed up over 20
ign-invested joint ventures for your
economic development zone, includ-
five U.S. -Chinese joint ventures. I
confident that American business-
n will increasingly discover the poten-
you offer.

We look forward to negotiating a
'f v bilateral agreement on textiles that
jht provide a more realistic and
litable foundation for our trade in this
:a. China is now the second largest
tile supplier to the United States in
ms of volume. In 1 year— between
$5 and 1986— the value and volume of
ina's textile exports to the United
ites shot up by 63%. Within the
ited States, our own textile
ustry— which is the largest single
ployer in our manufacturing sector-
been adversely affected by this
ge.

In the field of economic services, the
ited States permits Chinese banks
a 1 shippers to compete freely in our
1 rketplace. But many American pro-
£ sionals and businesses— bankers,
I ryers, architects, construction firms,
a lines, shipping firms— feel they are
( ler shut out completely or have
S:essive difficulty entering China's
I rket. I hope we will also see greater
r :iprocity in this particular field.

Although China has made significant
I )gress toward protecting intellectual
j )perty, Americans believe that further
r asures should be taken to ensure
i iivalent protection of patents,
t .demarks, and copyrights. Without
: ;urance that they will benefit from the
i lits of their endeavors, our business-
I 'n and investors will be reluctant to
s ire much of their know-how. We were
pased by China's decision to adhere to
i 3 Paris convention for the protection
( intellectual property and look forward
1 the promulgation of a new Chinese
ipyright law as soon as possible.

There are, of course, many critical
li.estions that Chinese Government
> ficials and managers have about
nerican policies as well. Some ques-
'ms, for instance, involved our policies
i the transfer of technology that China
;eds in its modernization effort. Let me
.sure you that this issue is receiving
"esident Reagan's personal attention,
'e will be taking steps in the near
ture to further liberalize our export
mtrols on technology of interest to
;hina.

The United States has already
bproved an impressive number of
:enses for high technology to China.

The value of approvals for such licenses
has totaled almost $12 billion since 1982.
Actual exports of such high technology
to China have grown to $3.6 billion since
1982. During this time, we made it
easier to export to China certain types of
American computers, microchip-making
equipment, and electronic instruments.
And we are constantly reviewing other
measures we can take, either by
ourselves or with our allies, to ensure a
more expeditious flow of technology to
China.

The Sino-American Stake
in Open World Trade

But technology alone is not enough to
guarantee successful modernization. Suc-
cess requires that an economic system be
open and flexible enough to use these
advanced technologies to produce goods
and services that are competitive in the
global market place. China and the
United States share an important mutual
interest in ensuring that this global
market remains open and continues to
expand.

No country has a greater commit-
ment to free and fair trade than does the
United States. It has been one of the
principal sources of our national pros-
perity and technological development
over the past four decades. And no
region has benefited more from consist-
ent American support for an open world
trading system than East Asia.
Americans welcome that fact. It is in our
own interest that the nations of East
Asia grow and prosper.

But today, protectionism, in its
varied forms, is a great danger for us all.
We have learned from the bitter
experience of the Great Depression 50
years ago how protectionism can
impoverish trading partners, provoke
retaliation, inhibit world trade and
economic growth, and eventually
encourage political instability.
Protectionism keeps prices up, reduces
living standards, and erodes
competitiveness.

And so, all nations, both industrial-
ized and developing, have an important
stake in working together to preserve
and expand the open world trading
system. Consequently, the United States
welcomes China's interest in par-
ticipating in the General Agreement on
Tariffs and Trade, more commonly
known as the GATT. The process of
Chinese accession will not be accom-
plished overnight— the GATT rules were
not designed for a large economy of the
Chinese type. And all the parties cur-
rently involved in the GATT want to

proceed on the basis of mutual benefit.
For our part, we are prepared to work
actively toward a solution. In our view,
China can play an important role by
actively joining GATT discussions seek-
ing to expand general trading oppor-
tunities and enhance market access for
exports worldwide. And China can fur-
ther develop its foreign trade system so
as to gain the maximum benefit from its
GATT participation.

Thus far, I have spoken of trade,
investment, and technology as instru-
ments of growth and development. They
are important. But by themselves, they
will not be sufficient to ensure a soci-
ety's continuing dynamism and innova-
tion—particularly in meeting the
demands of this emerging information
age.

Our ability to absorb and benefit
from these new technologies is not
simply a question of physical and
economic infrastructure. In the United
States, we have found there must also be
an intellectual environment that values
and encourages the potential for
creativity inherent in individual men and
women. And thus, education is a critical
element of any modernization effort. I
believe the United States can play an
especially constructive role in this field.
In addition to supporting your bold
education experiment here in Dalian, the
United States has welcomed nearly
20,000 Chinese students to our institu-
tions of higher learning for study in the
sciences, management, and humanities.
We are confident that when they return
to their country, they will make an
important contribution to China's mod-
ernization efforts. Along with our own
academics, businessmen, journalists, and
diplomats here in China, these students
can provide an important bridge
between our two countries. China's
policy of Kai-Fang, or openness,
recognizes that the current era of
dramatic economic, scientific, and
technological change, closed doors, and
rigid ideas is a formula for stagnation
and backwardness.

Conclusion

I am especially pleased that, on this trip,
I will be going from Liaoning Province, a
symbol of China's experimentation in its
efforts at economic modernization, to
Qufu, the birthplace of China's great
sage, Confucius. The contrasting sym-
metry between these two places— with
their special meaning of both tradition
and innovation— is particularly fitting. It
suggests that China will be able to draw
upon traditional social values and con-

lay 1987

THE SECRETARY

temporary scientific knowledge in
building a modern society and economy.

Qufu reminds us of some of the ideals
imparted by Confucius more than 2,500
years ago: the importance of education;
service to the nation; propriety in deal-
ings with others; and concern for the

Since I arrived . . . I have
held very good discussions
with both Prime Minister
Nakasone and. . . Foreign
Minister Kuranari .... We
agreed the Japan-U.S. rela-
tionship is very sound; we
continue to see eye-to-eye on
vital international issues
such as arms control; and
our cooperation remains
essential for regional and
global stability and prosper-
ity. The U.S. Government
welcomes the steady
improvement in Japan 's
ability to defend its own ter-
ritory and the current and
proposed growth in Japan 's
assistance to the developing
world.

We were also quite frank
in acknowledging that per-
sistent trade imbalances
threaten the well-being of
both countries and a global
free trade system that has
served us both so well. We
agreed that it is urgent that
we redouble our efforts to
find effective solutions to
this serious problem. These
solutions lie on both sides of
the Pacific and in both
national economic policy
and specific trade areas.

Tokyo, Japan
March 6, 1987

welfare of future generations. And,
though separated by great time and
distance, those ideals are quite similar to
the values held by the men and women
who worked to create what has become
the United States. Such principles are
still relevant for both our peoples today.

And here in Dalian, the very work in
which all of you are now engaged is an
example of Chinese and American
cooperation in expanding knowledge, in
experimenting with new methods, and in
learning from each other.

The days of greatest promise for
both our countries lie ahead. We can
learn from the past without dwelling on
it, and we can take pride in present
achievements without being satisfied.
But, primarily, we should look to the
future— a future in which our countries
will benefit from shared cooperation and
further economic development. We look
forward to working together to promote
a just, secure international system in
which all countries can prosper.

SHANGHAI,
MAR. 5, 1987 2

Mrs. Shultz and I are honored that you
would have this banquet to mark the
occasion of our visit and to have here so
many distinguished people who are
known not only in Shanghai but
throughout the world. And, of course, it
is a special pleasure to be here just a few
days after the 15th anniversary, as you
noted, of the Shanghai communique,
issued in this city February 28, 1972.

The Shanghai communique was a
momentous document. In it, the leaders
of the People's Republic of China and
the United States of America found it
beneficial to have the opportunity, after
so many years without contact, to pre-
sent candidly to one another their views
on a variety of issues. The meetings that
produced the Shanghai communique
marked a historic turning point between
our two peoples. And it is particularly
fitting that the document should be
associated with this dynamic city, which
has long been a center for China's con-
tacts with the rest of the world.

Guided by the carefully formulated
language of the Shanghai communique,
our two countries have turned our rela-
tionship away from the path of hostility
toward one of growing friendship and
cooperation. Together with the Joint
Communique on the Establishment of
Diplomatic Relations of January 1, 1979,
and the joint communique of August 17,
1982, the Shanghai communique remains
part of the foundation on which we have

':-:

together developed broad and mutual
advantageous ties between our people

The enduring significance of the
Shanghai communique is symbolized k
the fact that two of its participants in
the ceremony 15 years ago— Ambassa
dors Han Xu and Winston Lord— are
now charged with even greater respoi
sibilities for promoting good relations
between our two countries. We work 1
strengthen mutual understanding and
cooperation. The United States will cc
tinue to adhere to the principles con
tained in these three fundamental poli
statements on Sino-American relation

In the Shanghai communique, our
two governments affirmed that "nor-
malization of the relations between th<
two countries is not only in the interes
of the Chinese and American peoples 1
also contributes to the relaxation of te
sion in Asia and the world." Today the
words have special meaning for us, ev<
as they did in 1972. In 1987 Chinese ai
Americans need only recall the serious
cost to both sides of our period of
estrangement to appreciate the value i
the progress that we have made since
then. This perspective, in turn, should
prompt both our countries to work eve
harder to expand mutual understandin
and cooperation.

The Shanghai communique was a
forward-looking document, enabling oi
two countries to build for the future. I
called for the development of greater
contacts and exchanges between our
peoples in such diverse fields as scienc<
technology, culture, sports, and jour-
nalism. It recognized the importance o
facilitating the growth of bilateral trad
and of expanding contacts among our
senior officials. And by providing for
increased ties across a spectrum of
Chinese and American interests, the
Shanghai communique helped set the
stage for the normalization of our
political relations in 1979.

Through our work together, we ha\
seen that the original promise of the
Shanghai communique has been more
than justified. The program of bilateral
science and technology cooperation
between China and the United States is
now the largest that either country has
comprising 29 protocols, in areas rang-
ing from cancer research to exploration
of the bottom of the ocean. Our bilatera
trade has grown to exceed $8 billion in
each of the past 2 years— a record that 1
personally hope our countries will con-
tinue to break with each passing year.
We have welcomed over 19,000 Chinese
students to the United States, and you
have hosted more than 1,200 American
scholars.

Department of State Bulleti

AFRICA

The many visits exchanged by our
ior officials since normalization in
'9— beginning with Chairman Deng
,oping and including President
agan, President Li, Premier Zhao,
1 Vice President Bush— have fostered
per mutual understanding and
:ater appreciation of the common
,1s of our respective countries. We
re seen that the United States and
na have many areas of common inter-
in the East Asian region and beyond,
ch of us wishes to pursue an inde-
ldent foreign policy, but this does not
nd in the way of our increasing con-
ts and areas of cooperation. And we
lire the view that no one country or
jjiup of countries should attempt to
ininate others.

j] The Shanghai communique also pro-
Bed a framework within which we
idd deal with unresolved problems. We
j'e done much in this regard over the
lit 15 years. And we are pleased that
is process is continuing. In the
linghai communique, as in the other
ij) communiques on which our relation-

■ o is based, the United States made

6 ir that our policy is based on the prin-

■ le that there is but one China. We
j'e no intention of pursuing a policy of
I/o Chinas" or "one China, one

1 wan."

li In the Shanghai communique, the
I ited States also reaffirmed its interest
ii i peaceful settlement of the Taiwan
q ;stion by the Chinese themselves. We
; lerstand and appreciate that striving
1 a peaceful resolution of the Taiwan
q istion is also a fundamental policy of
1 Chinese Government.

These principles of one China and a
| iceful resolution of the Taiwan ques-
t a remain the core of our China policy.
1 lile our policy has been constant, the
a aation itself has not and cannot
r nain static. We support a continuing

■ )lutionary process toward a peaceful

r .olution of the Taiwan issue. The pace,
idvever, will be determined by the
4 inese on either side of the Taiwan
E -ait, free of outside pressure.

For our part, we have welcomed
Ivelopments, including indirect trade
nd increasing human interchange,
Mich have contributed to a relaxation of
$i tensions in the Taiwan Strait. Our
£'adfast policy seeks to foster an
« vironment in which such developments
J<n continue to take place.

The progress we have made in Sino-
.nerican relations since 1972 is all the
: pre meaningful when viewed in the
ntext of the changes in the United
:ates, China, and the international

situation since that time. On this, my
third trip as Secretary of State to the
People's Republic, I have had the oppor-
tunity to see remarkable progress being
made in China's modernization effort.
From the dramatic mountain scenery of
Guilin to the rows of new apartment
housing in Beijing, from the manage-
ment training institute in Dalian to the
birthplace of Confucius at Qufu, we have
witnessed the determined efforts of
China's people to build upon their own
traditions toward a future of economic
and social progress.

I am confident that, under the far-
sighted and bold leadership of Chairman
Deng Xiaoping, Premier Zhao Ziyang,
and other senior officials, including you
here in this city, Mr. Mayor, China will
forge its own unique solutions to the
challenges of modernization. And in the
context of the Chinese policy of "kai
fang" or "openness," the American peo-
ple are prepared to contribute where
they can to this process, for such

cooperation serves important shared
interests of both our countries.

Thus under successive leaders in
both countries, and in evolving cir-
cumstances, the fundamental premise of
the Shanghai communique endures: that
normal and cooperative relations
between China and the United States
are mutually advantageous, that they
will serve the common interests of our
two peoples in promoting economic and
social progress, and that they will con-
tribute to regional stability and help
build a more secure world for us all.

May I ask you all, then, to join me in
a toast in the spirit of the Shanghai com-
munique: to your health, Mr. Mayor, and
all of our other friends here in Shanghai,
to the continued progress and friendship
between the peoples of the United States
and of China.

'Press release 54 of Mar. 5, 1987.
2 Press release 59 of Mar. 10. ■

FY 1988 Assistance Requests
for Sub-Saharan Africa

by Roy A. Stacy

Statement before the Subcommittee
on Africa of the Senate Foreign Rela-
tions Committee on March 12, 1987.
Mr. Stacy is Deputy Assistant Secretary
for African Affairs. '

Thank you very much for this opportu-
nity to testify on behalf of the Admin-
istration's FY 1988 foreign assistance
request for Africa. Assistant Secretary
Chester Crocker had very much looked
forward to being here with you today,
but as you know, President Reagan will
be meeting very shortly with Kenya's
President Moi, who is in Washington on
an official visit, and it was necessary for
Dr. Crocker to postpone his first
meeting with the subcommittee during
this Congress until another time. He has
asked me to reiterate his desire to work
closely with you and his wish to be
available to the subcommittee at an
early, mutually convenient time.

I wish to begin by drawing the sub-
committee's attention to the Administra-
tion's proposal for a development fund
for Africa— a legislative initiative which
shares many elements in common with
congressional proposals put forward last
year and this year. I am pleased to note
that the general thrust of these initia-

tives is the same, and I believe we share
many of the same goals. We both share
similar convictions about the necessity of
trying to improve the effectiveness and
constructive impact of U.S. aid pro-
grams in Africa. I know we share the
same perceptions of the opportunities
before us to advance U.S. interests by
laving a stronger basis for a partnership
with the nations of Africa.

U.S. Tie to Africa

Our national interest in a strong,
healthy, enduring relationship with
Africa was demonstrated by Secretary
Shultz's visit to six countries across
West, Central, and East Africa in
January of this year. Although not
presently a significant trading partner of
the more economically advanced indus-
trialized democracies, Africa's size and
population make it a potentially impor-
tant commercial and economic market.
Its coasts border crucial shipping lines of
communication among Europe, the Mid-
dle East, South Asia, and the Far East.
Its geography guarantees it a role in
access to and security of the northern
and western Indian Ocean and the South
Atlantic. Although much has been writ-
ten about its currently exploited mineral
resources, few publications or analysts

.ay 1987

AFRICA

have made the explicit point that Africa
almost certainly contains the majority of
this planet's still-undiscovered mineral
resources. Its current mineral produc-
tion is essential to U.S. industry and
commerce; Africa is at this time virtually
the only economically affordable source
of many strategic minerals such as
cobalt, chromium, and the platinum
family of metals. Africa has vast
hydroelectric and agricultural potential
which has scarcely been developed, let
alone exploited. Its nearly 50 countries
comprise almost one-third of the
members of the United Nations, the
single most cohesive voting bloc in the
United Nations. These countries play an
increasingly significant role in the for-
mation of UN positions and policies
which are of great importance to the
United States— on terrorism, human
rights, refugee affairs, Middle East
peace talks, to name just a few. A report
currently being prepared for the Con-
gress will make the point that during
this past year, like the two before it,
there was an increased coincidence of
African voting positions with those of
the United States— as opposed to their
previous strong alignment with the posi-
tion of our major strategic adversary.

Finally, I do not believe we can or
should simply ignore or skip lightly over
the fact that nearly 12% of America's
own population traces its roots to Africa.
Africa is, therefore, important to us, as a
people, in cultural and historic terms.
African countries' surge toward inde-
pendence took place at the same time
that we were engaged in our own
renewed civil rights struggles in the
1960s. Thus, the United States has a
strong humanitarian and national inter-
est in helping Africa meet the basic
human needs of its people and realize its
full human and development potential.

In that regard, the United States has
a very strong interest in sustaining the
remarkable trend in policy reform and
structural adjustment that is sweeping
Africa. This U-turn away from socialist
economics and antigrowth statism is one
of the unheralded successes of U.S.
Africa policy. So far we are winning this
war of economic ideology, but it must be
reinforced and deepened, and that is a
matter of vital national interest to the
United States. Therefore, I will plan to
return to the subject later on in my
testimony.

Security Interests

The Administration seeks modest, but
essential, security assistance funding for
FY 1988-$98 million for the military

assistance program (MAP), $5 million in
foreign military sales (FMS) concessional
credit, $10.5 million in international
military education and training (IMET),
and $100 million in economic support
funds (ESF).

Our security assistance program is
designed to strengthen our bilateral rela-
tionship with countries which agree with
and support our strategic concern about
the northwest Indian Ocean; it is
intended to materially support those
nations actively resisting external
aggression and externally instigated
domestic destabilization; and it is carried
out with an intent to deny opportunities
for Soviet, Cuban, and bloc adventurism
throughout the region.

It has on occasion been asserted that
the Administration's policies have con-
tributed to instability in Africa by
emphasizing military over economic
assistance— by "militarizing" or con-
tributing to the "militarization" of the
continent. I categorically reject that
argument. The record quite plainly
shows the opposite. During the first 5
years of this Administration, economic
assistance accounted for more than 80%
of our total assistance to Africa. When
one considers emergency humanitarian
assistance, the ratio is even greater in
terms of providing for elementary and
fundamental human needs. In FY 1986
the ratio was $9.00 of economic
assistance for every $1.00 of military
assistance; and in FY 1987, it is $14.00
of economic aid for every $1.00 of
military aid. If the Administration's
request for FY 1988 is enacted into law,
the ratio will still be nine to one in favor
of economic aid.

I think it is important to note that
U.S. military assistance to sub-Saharan
Africa since the Reagan Administration
came to office has been only 3% of total
military assistance provided by all out-
side countries to Africa.

Since 1980 the United States has
provided $568 million in military help,
and $388 million of that total— well over
half— has been focused in the three coun-
tries where we have demonstrable,
tangible, strategic interests— Sudan,
Somalia, and Kenya. By contrast, the
U.S.S.R. has provided $11.7 billion in
military hardware during the same
period. The United States ranks but
sixth among providers of arms to Africa.

I want to emphasize that U.S.
military assistance is centered on train-
ing, logistics, maintenance, engineering,
and transportation— areas that con-
tribute to basic military capability as
well as to infrastructure improvements
and nationbuilding capacity. In only very

few cases have we provided lethal
assistance, normally in circumstances
similar to the current one in Chad,
where a friend faced a demonstrably
externally incited, directed, and provi
sioned aggression.

With the advent of the Africa fun
initiative, we have considerably reduc
our request for ESF to $100 million f
FY 1988, which now is proposed only
the countries where we have specific
strategic or security interests— Chad,
Djibouti, Kenya, Somalia, Liberia,
Senegal, Seychelles, and Sudan. Thes
eight countries figure prominently in
national security strategy in terms of
either conflict resolution (their weighl
influence in African councils) or milit;
access (prepositioning of supplies,
overflight rights, possible staging are
and are vital components of our natio
security interests for the future. The}
are important not just in terms of our
own strategic posture but also as sign
of U.S. resolve to other African coun-
tries. I believe it is important to note
that while the justification for ESF fo
these countries is based on U.S. secur
interests, the actual application of the
assistance would be economic and
developmental. So, rather than asking
for $100 million in military assistance
U.S. security needs, we are requestin;
$100 million in economic assistance tc
support development and even policy
reform which will strengthen our
democratic partners in Africa. The pr
cipal immediate use of these funds wo
be to support structural adjustment a
economic policy reform in the eight k*
recipient countries.

The political and security interest:
with Africa which I have just outlined
are priorities that would rank high on
any hierarchy of global interests. We
reject the idea put forward by some t\
Africa is a "residual" in our foreign
policy, something expendable when th
going gets rough.

Africa's Commitment
to Economic Reform

I would now like to return to the subje
of policy change. No single program is
more important to the overall health o
African countries than economic refon
Possibly the most important devek
ment in the past half-dozen years has
been the growing recognition among
Africans that they need to come to gri]
with the financial and human cost of
misguided economic policies. The Unit*
States, by means of the legislation und
consideration, would help sustain and
move Africa's economic adjustment

AFRICA

ward policies that will stimulate
vestment and incite new growth and
ie spread of development and employ-
ent opportunities. As we have all seen,
countries beginning to take the first
•ave steps toward a reordered and rein-
gorated economic process, these
langes are not easy and are not
ithout heavy political costs to the
3vernments involved. But without solid
jonomic policies and well-managed,
arket-oriented economies, all our and
frica's other strategic and humanitar-
n interests will be in jeopardy. There is
l enormous opportunity today to
)lidify the foundations that must under-
n all our economic and strategic inter-
its. This is an opportunity which, not-
withstanding our own painful budgetary
■alities, we cannot afford to let pass
$5 by.

The mature partnership we seek
ith Africa took a major step forward
1st May at the UN-sponsored Special
Session on the Critical Economic Situa-
jon in Africa. It was the first such UN
■jnecial session to focus on the economic
(beds of a single region— an event which
' ghlighted the change in Africa's
ij ;onomic direction. Even more remark-
) )le was the degree of consensus among
i frican nations themselves and donor
8 mntries on what needs to be done to
I -rest Africa's economic decline and
;gin the long road back to sustainable
rowth. Candidly, African nations have
i ^cognized, and have had the great
1 >urage to do so publicly, that past
I ;atist policies have failed to produce the
:onomic growth needed to improve the
ring conditions of their peoples.
At the UN special session, the
iricans presented an action program
-hich, among other things, included a
3mmitment to give priority to agricul-
? ire and to undertake a variety of other
B conomic, fiscal, and policy reforms.
- hey also pledged to strengthen invest-
1 lent incentives, review public financing
I olicies, improve economic management,
nd encourage domestic resource mobili-
^ation and the role of the private sector.
No fewer than 22 sub-Saharan
drican countries in the IDA-eligible
International Development Association]
■ ategory have embarked on or are about
jio initiate major structural reform pro-
! ;rams. Let me cite just a few examples.

• Senegal has substantially
increased agricultural producer prices,
reduced subsidies, embarked on reform
:>f its parastatal sector, reduced tariffs
>n industrial products, opened rice
trading to the private sector, and raised
itility rates to minimize the burden on
'he national budget.

• Zaire and Zambia have devalued
their currencies, eliminated most trade
and price controls, and increased
agricultural prices.

• In Zaire, in addition, the govern-
ment has established a market-based
foreign exchange system.

• Zambia, meanwhile, has intro-
duced a foreign exchange auction for
most commercial transactions.

• Kenya has mounted a major
stabilization effort, liberalized import
licensing and maize and fertilizer
marketing, and adopted a flexible
exchange rate policy.

• Somalia and Uganda have lib-
eralized prices for a variety of agri-
cultural products. They have been
rewarded with large increases in
agricultural production.

• Guinea closed down its entire
state banking system and allowed the
establishment of three commercial
banks.

• Ghana has changed its financial
policy so that interest rates, which used
to be highly negative in real terms, are
now positive.

The above listing is illustrative and
is not intended to be comprehensive. For
a more detailed description of the
African reform process, I would like to
insert into the record a paper entitled
"A Summary of Some Development
Effects of African Economic Reforms."

Many of the benefits to the masses,
particularly at the lower end of the
economic ladder, will take time, but
some early results can already be seen.
In general, adjustment programs are
more likely to have a positive redistribu-
tion of income effect by correcting
discrimination against the rural sector, a
bias which has hurt the poor. In most
cases, income transfers under adjust-
ment programs— from urban consumers
to farmers and shifts in public expend-
itures to less capital-intensive urban-
based projects— improve the equity of
income distribution and strengthen the
antipoverty focus in government
programs.

However, the adjustment process
has not been without cost. Using a sam-
ple of 13 countries which have launched
structural adjustment programs and for
which reliable statistics exist, the World
Bank reports that consumption in many
of them has been declining for a number
of years and that all but one (Ghana) are
likely to see per capita income consump-
tion stagnate or decline further in the
next 3 years. Each of those 22 reform
programs strikes at the heart of the con-
stituencies on which political power,
patronage, and the support of the

forceful urban elites have been based.
Clearly such belt-tightening carries with
it considerable risk for reformist govern-
ments. Staying the course will be
increasingly difficult, and that is why it
is so important that the United States be
willing, in effect, to put its money where
its mouth is— to support our friends as
they try to put into effect the very
reforms we have been trying so hard to
get them to face up to. In doing so, we
must not stand idly by while they run-
alone— the substantial political risks and
costs that will be so incurred.

Just to maintain current levels of per
capita income over the period 1987-89,
substantial resources over and above
those in sight need to be found. For six
countries— Zambia, Zaire, Senegal,
Niger, Madagascar, and Tanzania— this
gap could amount to an additional $700
million per year. Moreover, the quality
of assistance, and its timeliness and
responsiveness to political and economic
priorities, must also be improved.

U.S. Response

The United States has been at the center
of the growing dialogue with African
countries. Between 1980 and 1985,
development assistance and ESF to
Africa increased sharply, reaching $770
million in 1985. Regrettably the trend
was reversed in 1986, with development
assistance and ESF assistance to Africa
dropping to $603 million. In 1987 the
downward trend continued, driven by
Gramm-Rudman-Hollings targets and a
failure by Congress to appropriate the
funds necessary to sustain our global
foreign policy objectives. Excluding the
FY 1987 supplemental request submitted
to Congress, development assistance and
ESF assistance to Africa in FY 1987 is
projected at $478 million. However, even
if the supplemental request of $50
million were approved for Africa, the
level in 1987 would still be only $528
million— a decline of 31% relative to
1985.

Fortunately, the outlook for 1988 is
somewhat better, but the needs are still
great. The Administration has put
together an economic and security
assistance request that we believe is
responsive to Africa's requirements but
which still takes into account our own
painful budgetary stringencies. It is
absolutely vital that Congress fund the
Administration's FY 1988 request in
full; without the FY 1987 supplemental
and the full funding of our FY 1988
request, we will be unable to reverse the
downward trend of assistance to Africa.

May 1987

AFRICA

In this regard, Secretary Shultz's recen
comments on the foreign affairs budget
are worth repeating:

The President's foreign affairs budget
might usefully be looked upon as a form of
national insurance. In asking the Congress to
devote only two cents out of every budget
dollar to our foreign policy goals, the Presi-
dent has determined the minimum premium
we must pay as a people to safeguard the
peace and lead the free world. Those who
would cut the foreign affairs budget even
further are gambling needlessly with our
nation's future.

No one can say for sure how large the
gamble will be. We know we pay some price
every day in terms of lost opportunities to
influence events. Perhaps a crisis that could
have been averted today by timely and
relatively inexpensive military or economic
assistance, or through diplomatic efforts, will
explode in our faces the day after tomorrow.

The Development Fund for Africa

This brings me to the main topic of
today's hearing— the Administration's
proposal for a development fund for
Africa.

Following an exhaustive interagency
examination of our relationship with
Africa, we came to the conclusion that,
at this time of budgetary constraints, we
needed to make better use of our limited
aid resources in Africa and that the
development fund for Africa would do
just that. The fund brings important new
features to our assistance program,
including a special long-term commit-
ment to Africa, no-year funding, and the
elimination of functional accounts.

The Africa fund provides the balance
that we need at this moment in Africa's
economic development. It would enor-
mously facilitate our ability to promote
growth and long-term development in
Africa and is more responsive in
timeliness to the wave of economic
reform that must be the foundation for
sustainable development. The fund
would provide both project assistance at
the village level as well as quick-
disbursing program assistance to sup-
port policy realignment at macro and
sector levels. I should stress that the
Administration— and the Africans
themselves— do not see these types of
assistance as an "either/or" proposition.
Both are essential and are mutually sup-
portive. Without a proper macro-
economic or sector framework, many
projects would be doomed to failure.
Conversely without projects, targeted
activities in population, environmental
management, health, and child survival
would be hampered.

Since my AID colleague will be
addressing the programmatic assistance
content of the fund, I will limit my
testimony to two major programs incor-
porated in the fund— the African
Economic Policy Reform Program and
the Southern Africa Initiative.

African Economic Policy
Reform Program. This Administration
believes strongly that a continuing flow
of U.S. assistance at statistically signifi-
cant levels is necessary to sustain the
continentwide abandonment of statist
strategies and assist African inter-
national competitiveness. Consolidation
of these trends would constitute a major
American success and a significant
defeat for our adversaries' influence in
the Third World. The economic bind in
which most African states find them-
selves, and the prevalence of one-party
and military regimes, tend to promote a
search for radical solutions while
creating low-cost openings for Libya and
the Soviets. An African disavowal of
statism has the potential, over time, to
transform the African politico-economic
landscape to the advantage of both
African peoples and the United States.

Market economics and private
sector-led development are now on trial
in Africa as government after govern-
ment feels the public outcry from the
austerity measure inherent in structural
adjustment and economic reform. Our
goal must be to keep our partners
headed in this direction and to
demonstrate convincingly that it is the
West, not the Soviet bloc, that is the
natural and effective partner of African
countries seeking to develop and
modernize.

The African Economic Policy
Reform Program (AEPRP)— a program
designed to support market-oriented
policy reforms in Africa— is one of the
most effective instruments the United
States has for this. Originally designed
as a $500 million, 5-year program, the
AEPRP has had to be scaled back
because of severe budget pressures flow-
ing from the low level of foreign
assistance appropriations. In the first 3
years of this program's existence, alloca-
tions for the AEPRP totaled $150
million— about half the amount foreseen
for the period. Nonetheless, although
much more could have been accom-
plished with increased funding, the
AEPRP has played an important role in
sustaining reform in such countries as
Zambia, Malawi, Rwanda, Mali, Mauri-
tius, Senegal, Togo, Guinea, and Zaire.
Moreover, the AEPRP has had an
important catalytic effect in introducing

policy reform criteria into programs
funded from the World Bank and othe
sources. The AEPRP has provided us
with a capacity to conduct a dialogue
with and to assist African reform effoi
and to influence multilateral institutio
and other donors with additional
resources to commit to Africa. This
reason alone would justify the existenc
of a substantial AEPRP as a separate
program within the development fund
for Africa.

The Southern Africa Initiative.

Southern Africa's political orienta-
tion, stability, and economic well-bein^
are central to U.S. policy. America's
national interest in the region is best
served by a community of pluralistic,
representative societies which are sect
from external threats and which are si
ported by open and competitive
economies. This is also what the peopli
and governments of southern Africa
have professed to aspire to. The
alternative— economic regression, lack
progress in solving the political proble
of the region, and increased militariza-
tion and resort to violence— can only p
vide opportunities for those who wish
toward the United States and who see^
to promote southern African instability
and expand their influence in the regie

Without skillful U.S. diplomacy,
active coordination with our allies, anc
well-crafted aid and investment pro-
grams, positive trends toward econom
reform and dissociation from the Sovk
bloc could be overwhelmed by a combii
tion of South African actions, front-lin
state susceptibility to Soviet offers of
military assistance, and rising violence

For these reasons, as well as our
interest in retaining Western access to
southern African strategic mineral anc
metal supplies, we must remain activel
engaged in promoting peaceful change
and economic growth in South and
southern Africa. It is clear beyond que:
tion that there is new thinking about
political change and economic growth
taking place in the region, and inside
South Africa specifically. The fact that
increasing numbers of South Africans
are beginning to talk about what shouk
replace apartheid and that the front-lin
states have withheld action on their ow
sanctions, is itself evidence of the force
of change at work. Our goal, as a natio
must be to encourage change and give
substance and support. Adequate fund-
ing for the Southern Africa Initiative is
essential to the pursuit of these
objectives.

The Southern Africa Initiative—
which would provide funding for promo

Department of State Bullet

AFRICA

n of trade and investment, market-
iented policy reform, and improvement
regional transportation links— spells
t a positive vision for the region, not a
structive one based on threats, sanc-
ms and countersanctions, and polariz-

recriminations. This is precisely a
ne when the United States and our
ies should be seeking to maximize our
luence and our leverage. We need to
ert every possible effort to avoid
maging the economic, social, and
litical futures of the people and
vernments of southern Africa which
; seek to help. Tangible support by the
lited States for the region's economic
lalth will send powerful and positive
Irnals to both the South African
Iivernment and the black-ruled states
I the region at a time when negative
I ernative scenarios loom darkly on the
Jjrizon.

The Western donors' commitment to
je economic development of a free
duthern Africa is clear. Our allies are
ready doing more. U.S. assistance to
I? area has been impressive, totaling
1 .2 billion in the 1981-85 period, but
■ r share as a percentage of total
lestern bilateral and European Corn-
unity assistance is relatively small-
lout 15%. Our West European allies
1 9 heavily engaged in southern Africa
i rough bilateral as well as multilateral
jograms. For example, the European
i immunity, under the 5-year commit-
i ?nts made in 1986 at Lome III, proj-
its giving $1.7 billion to the region with
I out 40% of funding directed to the
j insport sector. The Dutch provide
I arly $230 million annually to southern
| Yica, and the United Kingdom is
| larging both its aid to the Southern
j "rica Development Coordination Con-
:rence (SADCC) and to Mozambique.
I le five Nordic countries have
I nounced a 50% increase in total aid to
le southern African region, from $2
I ilion over the past 4 years to $3 billion
•: the next similar period. Italy has
I ported a total pledge to southern
ifrican regional projects of $150 million,
| presenting about one-third of total
(alian aid to sub-Saharan Africa.

The overall European commitment
I the transport sector, SADCC's
ghest priority, is to be commended.
ine first phase of the rehabilitation of
jie often-talked-about Beira corridor in
j ozambique has now been fully sub-
jribed by European donors.

I also wish to mention the important
jmtribution of the private sector, par-
cularly from Zimbabwe, to the rehabili-
ktion of the Beira corridor. A private-
hctor Beira corridor group, which

includes U.S. companies, has been
established expressly for this purpose.
Zimbabwean businesses are investing in
the transportation infrastructure and are
planning industrial and agricultural ven-
tures in the corridor area that will help
to revive the troubled Mozambique
economy. Zimbabwean private sector
firms are contributing throughout the
region to the strengthening of national
economies. Through trading and
developing investment relationships,
these firms provide food, capital and
consumer goods, and spin-off employ-
ment opportunities that not only
stimulate neighboring economies but
serve as a model to show neighboring
governments how a healthy private sec-
tor can lead to growth and benefits for
all.

We have a supplemental request
before Congress for a "down payment"
for this vitally important initiative.
Assuming favorable action on the 1987
supplemental and FY 1988 requests, $93
million in additional funding will be
available for the first 18 months of this
initiative. The full 5-year funding of the
initiative would certainly not place the
United States out in front of our allies in
southern Africa who, as I have indicated
earlier, are committed to doing more
themselves. I should add that the
Southern Africa Initiative has been
included in the development fund for
Africa because it is in conformity with
the fund's principal objectives— long-
term development and policy reform.
Given the importance we attach to this
region, I wish to enter into the record
our program planning and policy docu-
ment for southern Africa, entitled "An
Initiative for Economic Progress in
Southern Africa." It responds to the
requirements of Section 505 of the Com-
prehensive Anti-Apartheid Act of 1986,
and supports our request for an FY 1987
supplemental and our FY 1988 request
for funding.

U.S. Multilateral Actions

On the multilateral front, the Admin-
istration has also played an important
catalytic role. Last year, the Interna-
tional Monetary Fund (IMF) and World
Bank executive boards approved a U.S.
proposal for a structural adjustment
facility using $2.7 billion special drawing
rights in trust fund reflows. These
reflows will be channeled to low income
countries— primarily in Africa— with pro-
tracted balance-of-payments problems.
The structural adjustment facility will
provide substantial support to countries
engaged in major structural adjustment
programs, thereby alleviating their
financial pressures.

We have also agreed to support a
substantially larger IDA VIII replenish-
ment which, together with voluntary
contributions, will total about $12.4
billion. Our contribution will be the
largest, with a total pledge of $2,875
billion. Under IDA VIII, Africa's share
will rise to between 45-50%. This com-
pares with $9 billion for IDA VII and an
African share of 36%.

Negotiations for the African
Development Bank's (AfDB) fourth
general capital increase have been com-
pleted, and we expect the Board of
Governors to give their approval by
June. The proposal under consideration
posits a 200% increase in the bank's
capital base. This would be the largest
ever. In addition, talks are just begin-
ning on the fifth replenishment of the
African Development Fund, the AfDB's
soft loan window.

I believe it is extremely important
that the Congress look carefully and
seriously at the issue of U.S. funding for
the international lending institutions; in
Africa, the multinational banks provide
nearly four times the amount of the
entire U.S. bilateral assistance program.
Yet we are falling behind on our pledges
to replenish funds for these institutions,
and, seeing the United States fall fur-
ther into arrears, our major industrial-
ized partners and allies may be tempted
to let up on their own solemn commit-
ments. This would have disastrous
effects for Africa, for which, in many
respects, the possibility of borrowing
from an international financial institu-
tion may be the best alternative to put-
ting themselves into hock or escrow to
the Soviets and others of our
adversaries.

These additional multilateral finan-
cial flows will clearly help but, as stated
earlier, more flows are necessary in
many African countries just to sustain
current per capita income levels. We,
therefore, urge full funding of the
Administration's FY 1988 request for
Africa.

Human Rights

This is not the place to catalogue
Africa's recent record in the field of
human rights; that record is fully por-
trayed in our 1986 human rights report
which has just recently been delivered to
the Congress. But I would like to empha-
size the fact that human rights concerns
and an interest in fostering respect for
democratic norms are a key ingredient
of this country's Africa policy and of our
relationships with the diverse countries
of that continent. Aware as I am of your
own strong commitment to these goals, I

|1ay 1987

ARMS CONTROL

want to reaffirm to you and to your sub-
committee that I share that commitment
and underscore my own belief that the
United States can be and should be
proud of what it has done and is trying
to do to advance human rights goals in
Africa. In fact, I am prepared to say
categorically that no other country is
doing more. No other country has
argued more forcefully for respect for
human rights; no other country ties its
economic assistance and political ties
more explicitly to respect for human
rights; no other country— as a country-
produces an annual report on human
rights performance of every country in
the world as part of its diplomatic prac-
tice. Although the human rights compo-
nent is only one of a large array of fac-
tors in our relationship with other coun-
tries, it is a very important one. I think
it is worth taking note of some repre-
sentative examples from Africa where
human rights issues are important to our
policy.

• Sudan enjoyed a return to democ-
racy in 1986, but continues to suffer
from the effects of a protracted ethnic
and cultural conflict compounded by
foreign intervention. We have con-
sistently pressed for movement toward
national reconciliation there.

• In Liberia there has been some
improvement in political conditions, and
the 1986 municipal elections were
apparently conducted in a fair and open
manner. But much mistrust still lingers
over the 1985 national elections and
subsequent coup attempt, and the
Liberian Government is working to over-
come the effects of earlier press ban-
nings and repression against opposition
groups. We have welcomed these
developments and are urging further
progress in dealing with the problems
that remain.

• In Uganda President Musevini's
government appears to have brought
peace through much— if not all— of the
country, and he is committed to healing
the wounds of war and to progress
toward national reconciliation and
economic recovery. Our aid program,
albeit small, gives us credibility on
economic reform issues and moral influ-
ence on account of our strong position
against the human rights abuses of
previous regimes.

• As a close friend, we are con-
cerned about the human rights situation
in Kenya, particularly the Kenyan
Government's recent actions against
political dissidents. Kenya has an open
political system which has demonstrated
a capacity to conduct dialogue and
debate on issues of national importance

in a fair and responsive manner in the
past. We believe that adherence to these
standards would result in a stronger and
more vibrant democracy.

• In Ethiopia, on the other hand,
the process of villagization continues
unabated, and that country's govern-
ment seeks unswervingly to implement a
true Marxist state.

• In Angola, I regret to say I believe
there has been a pulling back from
earlier indications of a willingness on the
part of the Popular Movement for the
Liberation of Angola (MPLA) to search
for a negotiated settlement to the con-
flict. The MPLA now appears to have
opted for a course of military victory
with ensuing misery and suffering
inflicted upon the hapless people of
Angola.

• In Zaire although we continue to
be concerned about sporadic reports of
inhumane treatment of prisoners and
political dissidents, the government has
lifted its ban on prison visits by the
International Committee of the Red
Cross (ICRC) and created a new govern-
ment ministry to investigate and recom-
mend redress for cases of abuse at the
hands of government authorities. We
have conducted a continuing dialogue on
human rights with the Government of
Zaire, including with President Mobutu,
and will continue to do so.

• Finally, I don't believe we should
let this discussion end without noting the
sharp deterioration of the human rights
situation inside South Africa, a situation
which can give none of us any satisfac-
tion and which has to call for a continu-
ing effort to maximize our influence
while doing the least possible damage to
those whom we seek to assist.

In closing, I would like to summan
the case for our assistance program fo
Africa. Although there are links to U.5
strategic policy in other parts of the
world, notably the Middle East and
Southwest Asia, they do not form the
principal rationale for a strong U.S. re
tionship with Africa. Africa's need for
external assistance as its nations grow
toward becoming mature democratic
partners in the free society of nations
self-evident. The U.S. national interest
in furthering and strengthening our re
tionship with Africa is equally self-
evident. I want to work with you in trj
ing to maximize what the United State
can offer, both by way of influencing t!
development of Africa as well as throu
what we can offer Africans as they wo
toward democratic advance. I would
stress that this budget request is not a
hastily conceived "wish list" but, rathe
reflects a number of painful choices we
have had to make as part of our con-
tribution to the congressionally man-
dated deficit reduction. The U.S. effor
to assist in the development of demo-
cratic societies in Africa which can joir
proudly in partnership with the rest of
the democratic community of nations ii
obviously in our own national interest,
from an economic standpoint, from a
political standpoint, and from a U.S.
national security standpoint. The inves
ment on our part is small; the reward-
not just for Africa but also for the
United States— is great.

'The complete transcript of the hearing
will be published by the committtee and wu
be available from the Superintendent of
Documents, U.S. Government Printing
Office, Washington, D.C. 20402. ■

U.S. Tables Draft INF Treaty

PRESIDENT'S REMARKS,
MAR. 3, 1987'

Working closely with our friends and
allies in Europe and Asia, the United
States has pursued— ever since my initial
proposal of November 1981— deep,
equitable, and verifiable reductions of
land-based U.S. and Soviet longer range
INF [intermediate-range nuclear force]
missiles, with the objective of their com-
plete global elimination. Most recently
we've been preparing a detailed treaty
text to implement these agreed objec-
tives and to follow the specific formula
on which Mr. Gorbachev and I agreed at

our meeting in Iceland last October. TI
calls for reductions to an interim globa
ceiling of 100 warheads on U.S. and
Soviet longer range INF missiles, with
none in Europe, along with constraints
on shorter range INF missiles and pro\
sions for effective verification. I remaii
firmly committed to these objectives.

Having long sought progress in this
area, therefore, I welcome the statemei
by Soviet General Secretary Gorbachev
on Saturday that the Soviet Union will
no longer insist on linking agreement o
reductions in INF to agreements in
other negotiations. This removes a
serious obstacle to progress toward INI

Department of State Bullet

ARMS CONTROL

' ) ductions and is consistent with the
iderstanding which Mr. Gorbachev and
■eached at our 1985 Geneva summit
eeting: that we would, indeed, seek a
parate agreement in this important
ea. I want to congratulate our allies
r their firmness on this issue,
jviously, our strength of purpose has
/d to progress.

To seize this new opportunity, I have
structed our negotiators to begin the
'' -esentation of our draft INF treaty text
Geneva tomorrow. I hope that the
>viet Union will then proceed with us
serious discussion of the details which
!i; 'e essential to translate areas of agree-
ent in principle into a concrete agree-
ent. And I want to stress that of the
lportant issues which remain to be
solved, none is more important than
rification. Because we're committed to
nuine and lasting arms reductions and
ensuring full compliance, we will con-
iue to insist that any agreement must
; effectively verifiable.

To explore further the implications
these latest developments, I have also
.ked our senior negotiators in
sneva— Ambassadors Max Kampelman,
ike Glitman, and Ron Lehman— to
turn to Washington to meet with me
ter this week. Following these discus-
ins in Washington, I will send a team
ck to Geneva to take up once again the
tailed negotiations for an INF reduc-
ns agreement.

We'll continue, at the same time, our
ry close consultations on INF issues
th our friends and allies in Europe and
ia. It was, after all, allied firmness
id unity in carrying out NATO's 1979
icision which helped to bring the Soviet
ion back to the negotiating table and
d to this opportunity to achieve a
eductions agreement to the mutual
jnefit of both East and West. And as
e proceed, it is well to remember that
Dthing is more important to the cause
'. peace than the credibility of our com-
mitment to NATO and our allies and to
le vitality of these alliances of free
ations.

.S. DELEGATION
STATEMENT,
tAR. 12, 1987

In March 12, the United States tabled
t the negotiations on intermediate-
ange nuclear forces in Geneva a treaty
irticle providing for on-site inspection,
'his treaty provision was developed in
lose consultation among NATO allies.

With this article, the United States
has completed tabling its draft INF
treaty, the other parts of which the
United States put forward on March 4.

The United States looks forward to
working out with the Soviet Union in
Geneva an effective verification regime,

including on-site inspection, as an essen-
tial part of a sound and durable INF
treaty.

'Made to reporters assembled in the
Briefing Room at the White House (Weekly
Compilation of Presidential Documents of
Mar. 9, 1987). ■

President Meets With Arms Negotiators

PRESIDENT'S STATEMENT,
MAR. 6, 1987'

I have just met with Ambassadors
Kampelman, Glitman, and Lehman to
hear their report on the nuclear and
space arms talks in Geneva. The level,
intensity, and seriousness of the effort in
Geneva have brought us closer to signifi-
cant reductions in nuclear arms.

As you know, the Soviet Union has
recently offered to move ahead with an
agreement to cut longer range inter-
mediate-range nuclear force (INF)
missiles. This is something the United
States and our allies have long urged.
This week, at my direction, the
American delegation in Geneva proposed
a draft treaty incorporating the
understandings which General Secretary
Gorbachev and I reached on this subject
at Reykjavik. Because of the oppor-
tunities for progress that are opening
up, I have asked Ambassador Glitman to
return to Geneva immediately. He and
his team will continue working hard to

remove the remaining obstacles to an
INF agreement. I hope this will in turn
spur progress in other aspects of the
Geneva negotiations, particularly agree-
ment on deep reductions in strategic
nuclear arms.

I am determined to maintain the
momentum we have generated. For that
reason, Secretary of State Shultz will go
to Moscow to meet with Foreign Minis-
ter Shevardnadze. The Soviet Govern-
ment has agreed that this visit will take
place from April 13 to 16. These talks
will provide a good opportunity to
review the entirety of our relationship,
including regional conflicts, human
rights, and bilateral issues and to con-
solidate the progress we have made.
Most important, I hope these discussions
will result in recommendations to
General Secretary Gorbachev and me on
further steps we might take to move for-
ward in all aspects of our relations,
including the Geneva negotiations.

'Text from Weekly Compilation of
Presidential Documents of Mar. 9, 1987.

The President at a luncheon meeting on March 6, 1987, with (left to right) Ambassador
Maynard W. Glitman, U.S. negotiator at the INF talks; Ambassador Max M. Kampelman,
head of the U.S. delegation to the nuclear and space arms negotiations and U.S. negotiator
at the defense and space talks; Ambassador Ronald F. Lehman II, U.S. negotiator at the
START talks; and White House Chief of Staff Howard Baker

Vlay 1987

ARMS CONTROL

Nuclear and Space
Arms Talks Close
Round Seven

Following is a statement by Ambas-
sador Max. M. Kampelman, head of the
U.S. delegation to the nuclear and space
arms negotiations, in Geneva on March 6,
1987.

Today marks the end of the seventh
round of our talks. The American delega-
tion believes this has been a useful and
productive round. We have made solid
progress in recording, on paper, our
areas of agreement and disagreement in
all three negotiating groups, a step
which the United States first proposed
at the Vienna meeting of Secretary
Shultz and Foreign Minister Shevard-
nadze in early November. The process
has succeeded in clarifying our dif-
ferences where they continue to exist,
and we believe this to be indispensable
for achieving the final agreement we
seek.

On Wednesday [March 4], the United
States submitted a formal INF
[intermediate-range nuclear forces]
treaty in an effort to expedite construc-
tive movement toward agreement on the
reductions and ultimate elimination of
intermediate-range nuclear weapons.
This comprehensive document repre-
sents the work of many months and
reflects our view that there are good
prospects for reaching agreement in
INF.

One obstacle, among others, to
reaching such an agreement has been
Soviet insistence since Reykjavik on link-
ing INF to progress in the other two
negotiating groups. We are pleased,
therefore, that the Soviet Union in
recent days has removed this obstacle
and withdrawn its objections to negotiat-
ing and implementing an independent
INF agreement separately and on its
own merits. In view of recent develop-
ments, the INF negotiating group will
continue to meet for an additional
period.

It is the intention of the United
States to push forward in the START
[strategic arms reduction talks] and in
the defense and space negotiating
groups. In our quest for reductions in
strategic nuclear arms, substantial prog-
ress has been made, and we would like
to formalize agreement for 50% reduc-
tions. We also seek agreement on explor-
ing a stable transition from an offensive
dominant military force structure, which

now characterizes the military structure
of our two countries, to one in which
greater emphasis is placed on finding
effective defenses.

The eighth round is now scheduled
to resume on April 12, 1987. ■

INF Extended
Session Ends

Following are statements by Ambas-
sador Maynard W. Glitman, U.S.
negotiator at the intermediate-range
nuclear forces (INF) talks, made in
Geneva on March 26, 1987, and by Presi-
dent Reagan on March 27.

AMBASSADOR GLITMAN'S
STATEMENT

The extended session of the U.S. -Soviet
INF negotiations concluded today,
March 26, 1987. It has been agreed that
the negotiations on nuclear and space
arms will resume on April 23, 1987.
Accordingly the INF negotiating group
will resume its work on that date. It is,
of course, understood that this date
could be adjusted at the upcoming U.S.-
Soviet meeting of foreign ministers in
Moscow.

The extended session just concluded
has been useful and constructive in many
areas. The United States completed the
explanation of its draft treaty tabled on
March 4 which provides for the reduc-
tion of longer range INF missile war-
heads to 100 globally, with zero in
Europe, as agreed by the United States
and Soviet leaders at Reykjavik.

The U.S. side repeated its longstand-
ing position that there must be equally
global constraints on shorter-range INF
missile systems as an integral part of
this INF treaty to ensure its viability
and effectiveness.

Finally during this session, the
United States also amplified its com-
prehensive and effective verification
regime tabled as part of the treaty,
including provisions for on-site
inspection.

While the United States believes
that useful progress has been made in
this round, difficult issues remain before
us. Substantive issues need to be
resolved, and detailed work needs to be
done in all areas which should be covered
by an INF treaty. For its part, the
United States has already placed a
detailed and comprehensive draft treaty
on the negotiating table. The United

States will return to the negotiations i
April prepared to engage in intensive
work toward the earliest possible cone
sion of a sound and durable INF treat\

PRESIDENT'S STATEMENT'

Yesterday marked the close of the
special extended session of negotiation
between the United States and the
Soviet Union on intermediate-range
nuclear forces, a part of the nuclear ar
space arms talks in Geneva. We
extended this session beyond the Marci
closure of the other NST negotiating
groups in order to make further prog-
ress toward our long-held goal of deep
equitable, and effectively verifiable
reductions in U.S. and Soviet longer
range INF (LRINF) missiles, with the
ultimate objective of their complete
global elimination.

On March 4, at my direction, our
U.S. negotiators tabled a draft INF
treaty text which follows the formula
that General Secretary Gorbachev and
agreed upon at our meeting in Iceland
October 1986. We have now presented
and explained in detail to the Soviets o
draft treaty text, which calls for reduc
tions to an interim global ceiling of 10(
warheads each on U.S. and Soviet lonj
range INF missiles, with none in
Europe, along with constraints on
shorter range INF (SRINF) missiles ai
provisions for effective verification.

U.S. and Soviet negotiators have
established working groups to facilitafc
discussion of the draft treaty which we
put forward, and they are working to
develop a joint text. These discussions
with the Soviets have been businesslikt
and productive.

I want to emphasize that our posi-
tion on these negotiations is based on
very close consultations with our frienc
and allies in Europe and Asia, whose
security is most directly affected by th«
Soviet INF buildup. Our allies, more-
over, made substantial contributions to
our proposals.

We and our allies have made clear 1
the Soviets that an INF agreement mu:
be effectively verifiable. As I have
pointed out previously, of the issues
remaining to be resolved, none is more
important than verification. Our draft
treaty text, therefore, includes a com-
prehensive verification regime to ensuri
compliance with the treaty.

We have three key objectives in
seeking such verification provisions:

• To enhance confidence in the
agreement, which in itself will contribut

Department of State Bulleti

ARMS CONTROL

greater security and stability in

•ope and Asia;

To deter violations by increasing

risk of detection; and

• To permit quick detection of any
)ublesome activities, thereby providing
nely warning of a potential or real
reat to allied security.

On-site inspection will be an impor-
f i "" it element of any effective verification
rime. Such inspections will assist in
rifying the initial exchange of data on
F systems and the subsequent destruc-
n, dismantlement, and conversion of
iINF systems and will play an impor-
lt role in ensuring continued com-
ance with treaty limitations.

Another key provision of our draft
ct concerns SRINF missiles. We and
r allies have made clear since 1981
it constraints on SRINF are essential
Ian initial INF agreement so that the
Jviet Union cannot undercut LRINF
liitations through a buildup in SRINF
rssiles. These constraints, therefore,
list provide the United States with a
Iht to equality with the global level of
jtaloyed Soviet SRINF systems.
IJ At Reykjavik, General Secretary
Irbachev and I reaffirmed the impor-
II it principle agreed by our negotiators
jj ring the INF negotiations of 1981-83;
'i -nely, that an interim INF agreement
I ist include constraints on SRINF
|;tems in order to "ensure the viability
l i effectiveness of an agreement on
1 iger range missiles." In recent weeks,
Ivvever, the Soviets have backtracked
f m this position and are now saying
1 it the question of shorter range INF
I ssiles should be taken out of the cur-
I it INF negotiations and be dealt with
i tead in separate negotiations.
i This new Soviet position on shorter
i lge missiles would allow the Soviet
I don a continued monopoly of these
litems and would leave them free to
1 rease their existing force. This clearly
i lot acceptable to us or our allies.
; The crucial issue now is whether the
4 viet Union is prepared to accept equal
iistraints on SRINF missiles in the
litext of an initial INF agreement or
liether it will insist on maintaining
• periority over us in this important
S3a and, with this superiority, the abil-
I to undercut any INF agreement,
lice the United States obviously cannot
yrmit such an outcome, we will con-
liue to insist that equal constraints on
|orter range INF missiles must be an
I .egral element of an initial INF treaty.
I I remain fully committed to achiev-
•]? an equitable and verifiable INF
iductions agreement. For this reason, I
blcomed Mr. Gorbachev's recent state-

lay 1987

ment on INF, which removed an obstacle
to progress that the Soviets had imposed
at Reykjavik. The United States then
put forth a comprehensive, realistic draft
treaty for Soviet consideration. Now is
the time, therefore, for the Soviet Union
to live up to its previous commitments
on INF and to come to terms on an
equitable agreement.

Finally, let me say a word about the
strength and unity of our alliances. It
was, above all, NATO's cohesion in car-
rying out its 1979 "two-track" decision
on INF that helped to bring the Soviets
back to the negotiating table and per-
suaded them to negotiate seriously. Our
own commitment to the security of our
friends and allies in both Europe and
Asia, all of whom have been threatened
by Soviet INF missile deployments,

remains as strong as ever. We will con-
tinue to work closely with them as we
seek Soviet agreement to equitable and
verifiable INF reductions.

The United States and the Soviet
Union have agreed to begin round eight
of the NST negotiations on April 23.
Thus, the INF negotiating group, along
with the strategic arms and defense and
space negotiating groups, will resume
their work on that date. The United
States and the Soviet Union have agreed
at the same time, however, that this date
could be adjusted when Secretary Shultz
and Soviet Foreign Minister Shevard-
nadze meet in Moscow on April 13-15 to
discuss these and other issues on the
broad U.S. -Soviet agenda.

■Text from Weekly Compilation of
Presidential Documents of Mar. 30, 1987.

Arms Control and Openness

by Kenneth L. Adelman

Address before the Conference on
Disarmament (CD) in Geneva on
February 5, 1987. Mr. Adelman is Direc-
tor of the U.S. Arms Control and Disar-
mament Agency.

Two years ago, when I first addressed
the Conference on Disarmament, Donald
Lowitz [U.S. Representative to the CD]
sat by my side here; he was serving as
your president that month. Since then,
you have had the good fortune to know
Don as I've known him for my adult life:
a warm and wonderful person, who
served his country whenever called
upon— and who believed in this con-
ference and its goals and who believed in
all of you. You saw this side of Don. I
had seen him as a marvelous husband to
Shana— herself such a perfect embodi-
ment of what's fresh and caring about
America— as a fabulous father to Amy,
Teddy, and Josh and a loving grand-
father to David. How they will all miss
him. How we will all miss him.

I understand that you have already
heard President Reagan's tribute to
Don. Let us, as the President said, pur-
sue the goals Don pursued and, by so
doing, give living monument to his work
here. I would like now to convey to you
the President's greetings at the opening
of this session.

As the Conference on Disarmament
resumes its work in 1987, I would like to
extend my wishes for a productive session.
Although the opening of the conference has
been shadowed by the sad and untimely loss
of our Ambassador, Donald Lowitz, I am

certain we can join together in making
progress in this forum as a fitting testimonial
to his memory.

Your work constitutes an important and
integral part of efforts undertaken by the
international community to make our world
more peaceful. The issues with which you deal
are complementary to those being addressed
bilaterally between the United States and the
Soviet Union. The promise of Reykjavik,
which has given us the vision of a world with
significantly reduced levels of nuclear
weapons, has become an indicator of what is
possible. It inevitably draws attention to the
issues on your agenda and should encourage
you in your efforts to increase international
stability and cooperation.

One of the most important tasks facing
you is the working out of a comprehensive,
effectively verifiable ban on chemical
weapons. This task is made even more dif-
ficult by the fact that capabilities for chemical
warfare are increasing and that, contrary to
international agreement, chemical weapons
are being used in various parts of the world.
You have a heavy responsibility. For as you
consider the provisions of a treaty, you must
make sure that a global ban will, in fact,
eliminate the capability for chemical weapons
to be used against future generations. An
effective convention will require an unprece-
dented degree of openness on the part of all
states.

I reaffirm the commitment made by the
United States in 1984 when we tabled our
draft treaty banning chemical weapons
worldwide. The United States delegation will
make every effort to work for the total
elimination of these terrible weapons and for
the verification provisions necessary to
ensure that they never again enter the
arsenals of the world's armies.

ARMS CONTROL

Your efforts in this and in other fields are
to be commended. We are committed to
working with you in the vital task of bringing
stability to a still insecure world and in
achieving responsible solutions to the problem
of reducing the world's arms.

Shift in the

Arms Control Agenda

In the 2 years since I last spoke to this
forum, the world has witnessed some
dramatic developments in arms control.
I would single out especially the
remarkable meeting between President
Reagan and General Secretary Gorba-
chev in Reykjavik last October. From the
U.S. perspective, Reykjavik marked a
historic turning point in our arms control
dialogue with the Soviet Union. Why?
Because for the first time, we engaged
the Soviet Union in serious
negotiations— not just public initiatives
but serious, hands-on negotiations— on
the subject of deep reductions in offen-
sive nuclear arms.

This is a goal that President Reagan
has been striving for since he first pro-
posed the "zero-zero" option for
intermediate-range nuclear forces (INF)
and deep strategic arms reductions in
1981 and 1982. At that time, you may
remember, there were many people in
our own country and elsewhere who
argued that such ambitious arms reduc-
tion proposals had no real place in the
arms control dialogue. Many claimed
that these deep-cuts proposals were too
far-reaching and could never be the basis
for productive negotiations with the
Soviet Union. And when the Soviet
Union walked out of the arms talks at
the end of 1983— totally unjustifiably, I
might add— many of these same critics
reiterated their arguments, believing
that events had vindicated their views.

But President Reagan persisted.
And his persistence has paid off in a real
shift in the arms control agenda. Now,
at last, the two sides are talking in
nuclear arms control about agreements
that, if signed— and if complied with
fully— would effect real and deep reduc-
tions in offensive nuclear arsenals, par-
ticularly in the most destabilizing
systems. No more are we looking at
arrangements like the SALT [strategic
arms limitation talks] accords of the
1970s, which permitted vast growth in
the arsenals of both sides— a fourfold
increase in the number of Soviet
strategic nuclear weapons, (i.e., strategic
ballistic missile warheads and bomber
weapons)— since SALT I was signed in
1972. Thanks to President Reagan's per-
sistence, the agenda in nuclear arms con-
trol is now, irreversibly, deep offensive
weapons cuts.

The Need for Openness

There is another development to which I
would call your attention— a develop-
ment that has occurred outside the field
of arms control proper but which, if it
were to come to pass, could have poten-
tially broad ramifications for arms con-
trol and even for the deliberations of this
forum. That is the increasing discussion
of "openness," of glasnost, in the Soviet
Union. Indeed, First Deputy Foreign
Minister Vorontsov addressed it here 2
days ago. It is not clear yet where this
focus on openness might lead. It is not
clear yet what glasnost is to mean or if
openness in the Soviet context will be
genuine openness by the standards of
truly open societies. Experience warns
us to temper hope with skepticism.

But we can speak conditionally. We
can express hope. We can say that if this
glasnost, this development, were ever to
come to real fruition, we could very well
find ourselves standing on the threshold
of a new era for the cause of arms con-
trol and disarmament. For openness and
arms control go together, on two levels.

First, there is a clear connection
between openness and international
trust, between peace and the open
society. Andrey Sakharov, that great
world hero and a Soviet hero, has spoken
of "the indissoluble bond between inter-
national security and trust on the one
hand and respect for human rights and
an open society on the other." Societies
that respect the rights of their citizens,
that respect freedom of speech, freedom
of religion, freedom of the press,
freedom to travel and to emigrate,
freedom of assembly— that defend the
rights of individuals to criticize their
leaders and to vote them in and out of
office— such societies also keep their
international treaty commitments. Such
societies can be expected to behave in a
fashion that promotes world peace. Such
societies do not crave new territory.
Such societies do not menace their
neighbors. Conversely, as President
Reagan said not long ago, "... a govern-
ment that will break faith with its own
people cannot be trusted to keep faith
with foreign powers."

Second, there is a direct, practical
link between openness and progress in
arms control. That link lies in the prob-
lem of verification. Verification has
always defined the outer frontier of
what we can achieve in arms control. We
can control effectively only what we can
effectively verify. But verification is
often directly limited, in turn, by the
degree of openness permitted by the
states that subscribe to an arms control
agreement.

In open societies like the United
States, relevant information on defense
programs is readily available. That is
why, when dealing with open,
democratic societies, one would not ha\
to rely exclusively on so-called national
technical means of verification or
elaborate verification mechanisms to
verify arms agreements. I have often
said that the Soviet Union could tell if
we ever were engaged in violating arm,
agreements simply by subscribing to
half-a-dozen publications— The New Yor
Times, The Washington Post, Aviation
Week, and a handful of others.

That is one reason why the United
States has called for greater openness i
all nations. Since 1982, the United
States has consistently pressed for
resolutions on disarmament and open-
ness in the UN General Assembly. In
1982, our resolution on disarmament ai
openness was adopted by the General
Assembly. It explicitly stated the con-
nection between advancing disarmamei
on the one hand, and openness, free
discussion, and free dissemination of
information in all nations, on the other.
It encouraged all nations to advance th
cause of openness as a way of advancin
the cause of disarmament and arms
control.

And that is my message to you to-
day: the path to more ambitious arms
control, in all areas, lies through the
gate of greater openness. To quote Dr.
Sakharov, the issue here "is not simply
moral one, but also a paramount, prac-
tical ingredient of international trust ai
security."

The world is still very far from
achieving this kind of openness, which
one reason why arms control remains a
very difficult, very painstaking busines.
Take an issue as rudimentary as pub-
lished figures on defense spending. In
1985, according to our best estimates,
the United States and the Soviet Union
each devoted the equivalent of approx-
imately $250 billion to defenses. Figure
on U.S. defense spending are, of course
widely available in open sources. They
are broken down by category. They are
extensively discussed and scrutinized in
the U.S. Congress and elsewhere.
Figures for Soviet defense spending, or
the other hand, must be derived from
careful analysis. Why? Because pub-
lished Soviet figures bear no relation to
the reality of the Soviet defense effort.

The Soviet Union claims to have
spent 20.3 billion rubles on defense in
1985. Assuming the official exchange
rate of approximately $1.50 per ruble,
that comes to about $35 billion. Now,
that is a ridiculously small sum for the

Department of State Bullet

ARMS CONTROL

clared defense budget of a state
jarded as a military superpower. It
ars no relation to the $250-billion
ure I mentioned a moment ago, which
■gests what it would cost the United
ates to mount an effort equivalent to
present Soviet defense effort. There
no way in the world that the Soviet
lion could be mounting its current
fense effort on its declared budget of
.3 billion rubles. It is spending many
les that.

Or again, take the public statements
the two sides on the issue of strategic
fenses. The U.S. Strategic Defense
tiative (SDI) is an openly declared
Dgram. Its budget is published and
ted on by the U.S. Congress. Its
ivities are reported to the Congress,
iere it is widely discussed and debated,
e President of the United States often
cusses this program in his speeches.
Yet to this day, even as we negotiate
defense and space issues with the
viet Union, the Soviet Union con-
ues to deny that it has the equivalent
an SDI program. We know this denial
be false. We know that it began
estigating several advanced strategic
'ense technologies before we did. We
3W it is extensively engaged in
e )loration and development of these
I hnologies. We know, for example,
t .t the Soviet Union has an extensive
1; er research program involving about
3 000 scientists and expenditure of
■ ources worth approximately $1 billion
a ear. And it is researching a host of
flier technologies as well,
i Can it surprise anyone that our prog-
I ;s in arms control is often slow and
A ting when there is a lack of openness
a i honesty between governments about
* ;n such elementary facts as this?

< mprehensive Ban
c Chemical Weapons

■{ ere is, in short, almost no area of
I ns control in which greater openness
\ 'iild not open the way to greater prog-
jhs. In some of these areas, lack of
cenness is among the most crucial bar-
t rs to meaningful agreement. Thus,
i less the Soviet Union moves to the
(enness it now talks about, accomplish-
Ihnts are limited, if not thwarted
• ogether. That movement is necessary
i- progress on an issue before this con-
K'ence now.

[ Of the tasks before you, my govern-
unt considers the negotiations on
i hieving a comprehensive and effec-
ij'ely verifiable global ban on chemical
:apons to have the highest priority,
ternational negotiators have been

striving to remove the chemical weapons
threat since the late 19th century. Here
it is 1987. Nearly a century has passed
since the Hague conference prohibited
use of chemical projectiles in 1899. Yet
the problem of chemical weapons
remains. Indeed, as the world edges
toward the 21st century, the chemical
weapons danger continues to grow.
Shockingly, we have witnessed use of
chemical weapons by some nations in
this decade and even during the past
year.

It is high time that chemical
weapons use be rendered a thing of the
past. It is high time that these barbaric
weapons were banished from the face of
the Earth. But it is obvious that if these
weapons are to be banned, a thorough
and effective mechanism of verification
is necessary. My country will not accept,
and no free nation should accept, a ban
without sound machinery of verification.

A chemical weapons ban without
confidence of compliance will be no more
effective than the Hague conference's
1899 prohibition on use of artillery con-
taining poison gas, which did nothing to
prevent extensive use of chemical
weapons in the First World War. It will
be no better than so many of the
misguided disarmament measures of the
1920s and 1930s, which, in Walter
Lippman's famous formulation, were

"tragically successful in disarming the
nations that believed in disarmament"
while permitting aggressor nations to
maintain and expand their arsenals.
Until an effectively verifiable chemical
weapons ban is in place, the American
people will insist, rightly, that the
United States maintain adequate
chemical forces to deter use of these
heinous weapons by an aggressor.

While the establishment of pro-
cedures for the effective verification of
arms control agreements is often
extremely demanding, both techno-
logically and politically, in the case of
chemical weapons the challenges are
especially great.

The toxic chemicals which are or
could be used as agents of warfare are,
in general, not very different from a
variety of substances having legitimate
civilian use. Similarly, the chemical proc-
ess equipment used in their production
can be found in the legitimate manufac-
ture of pesticides or corrosives. Chemical
agents can be stored in bulk, facilitating
transportation as well as concealment.
Chemical munitions have no particular
characteristics which distinguish them
from other types of munitions. They,
too, are small and easily transported and
concealed.

Thus, as I mentioned before, the
issue of openness goes to the heart of

Soviet Nuclear Test Vents
Radioactive Debris

The first announced Soviet test in their
resumed nuclear explosion test program
occurred on 26 February 1987 (GMT).
This test was accomplished by a release
of radioactive nuclear material that was
detected outside Soviet territory.

The 1963 Limited Test Ban Treaty
(LTBT) prohibits nuclear explosions that
cause "radioactive debris to be present
outside the territorial limits of the State
under whose jurisdiction or control" the
explosions were conducted.

Since the LTBT came into force over
20 years ago, the Soviet Union's
underground nuclear test practices have
resulted in the venting of radioactive
matter on numerous occasions and have
caused radioactive matter to be present
outside the Soviet Union's territorial
limits in violation of its legal obligations
under the Threshold Test Ban Treaty
(TTBT). The debris from these Soviet

tests does not pose calculable health,
safety, or environmental risks, and these
infractions have no apparent military
significance. However, our repeated
attempts to discuss these occurrences
with Soviet authorities have been con-
tinually rebuffed.

The U.S. Government views with
concern the recent Soviet venting of
nuclear material and has called on the
Soviets to bring its testing practices into
full conformity with the LTBT.

As the United States proceeds with
its efforts to strengthen the existing
Threshold Test Ban and Peaceful
Nuclear Explosion Treaties, particularly
in the area of verification, we regret the
Soviet Union's initiation of its new
testing program with a test that once
again calls into question their commit-
ment to their treaty obligations.

ACDA press release of Mar. 12, 1987.

jay 1987

ARMS CONTROLS

achieving a chemical weapons ban. Arti-
cle III of the rolling text of the draft
convention on chemical weapons
requires each state party to declare
whether it possesses chemical weapons.
And yet, today, the United States is the
only country in this room, or in the
world, that publicly admits to having
chemical weapons and has made public
its stockpile locations. That, to me, is
astonishing— especially when so many
countries are pressing the urgency of a
chemical weapons ban. Some are even
criticizing the United States for develop-
ing chemical weapons.

The production of chemical weapons
is not illegal. The use of chemical
weapons is illegal. Since it signed the
1925 Geneva protocol, the United States
has never used chemical weapons; others
have— others who don't even publicly
admit to possessing chemical weapons;
others with representatives in this very
room. The world expects better than
this.

The United States openly declares
its possession and development of
chemical weapons. The Soviet Union,
along with other nations, does not. The
world expects better than this.

The United States has presented
publicly an extraordinary amount of
information concerning its binary
weapons program. The details are known
to everyone. The Soviet Union has told
us nothing about its chemical weapons
program. The world expects better than
this.

The United States invited all
members of this body to Tooele, Utah, to
examine procedures for the destruction
of chemical weapons. The Soviet Union
has yet to accept the invitation. The
world expects better than this.

The United States will devote some
$500 million under the fiscal year 1987
defense budget to the elimination of its
current chemical munitions stocks. The
Soviet Union, apparently, has no similar
chemical weapons elimination or
demilitarization program. The world
expects better than this.

The United States maintained a
unilateral moratorium on the develop-
ment of chemical weapons for 17 years.
The Soviet Union has never ceased pro-
ducing chemical weapons and continues
today to expand its facilities and
capabilities. The world expects better
than this.

Compliance Concerns

It is because of this state of affairs,
because of this glaring lack of openness
in the realm of chemical weapons, that

we are more than ever convinced that
confidence in compliance is essential to
any chemical weapons ban. We are con-
vinced that nothing less than an inspec-
tion regime institutionalizing the right of
short-notice access, upon demand, to any
location or facility suspected of produc-
ing or storing chemical weapons will
effectively deter noncompliance— the
challenge-inspection provisions of article
X of the U.S. draft conventions.

But every article of the convention
must be designed to contribute to this
overall objective of confidence in com-
pliance. And to be effective, each provi-
sion must be clearly and unambiguously
defined, written, and understood. It will
do little good to have broad agreement
on the basic provisions if inspection pro-
cedures are inadequate or imprecise.

At present, it is a point of consensus
among all our governments that each
state party will provide international
access to its destruction sites, to its pro-
duction facilities to be eliminated, and to
its facilities for producing permitted
chemicals. But working out precise pro-
cedures for all these tasks was only just
begun by Ambassador Lowitz and his
delegation. And the vital question of how
to ensure confidence in compliance with
regard to undeclared sites still remains
at issue.

But, again and again, wherever we
turn in this negotiation, it is precisely
the absence of openness, the absence of
glasnost, that is standing in the way of
further progress. In the draft conven-
tion, I count no less than 13 different
types of declarations that each state
party will be expected to make about its
stockpiles and their destruction, about
its chemical weapons production
facilities and their elimination, and about
its chemical industry.

Article IV is a key element in this
series of declarations— calling for the
declaration of all stockpiles. Everyone
agrees that each state party should
declare the amount and composition of
its stockpile. Everyone agrees with the
basic objective that the complete
stockpile should be destroyed. And yet,
the Soviet Union continues to reject two
particular "openness" provisions which
are necessary if we are to have con-
fidence that this objective is fulfilled.
One is the early and complete declara-
tion of the stockpile locations and onsite
verification to ensure that the declara-
tion reflects reality. The second is onsite
monitoring of the stocks until destruc-
tion to ensure that some weapons are
not clandestinely diverted to undeclared
sites before destruction. And it is
obvious that we face the serious risk that

a state will not declare all its stockpile
locations or the entire amount of its
stockpile.

The consequences of lack of open-
ness in this realm are unfortunate and
are not lost on world public opinion. I
think the 1983 yearbook of the
Stockholm International Peace Resear
Institute identified the problem— and t
solution— as well as anyone.

Faced with a high degree of uncertaint;
about Soviet CW intentions, Western defen
authorities have no prudent option but to
assume that they present a threat. If it
decided to do so, the Soviet government coi
probably find a way for reducing the ambi
guities attaching to its CW stance in Weste
(and non-aligned country) eyes without at tl
same time jeopardizing Soviet security to tl
point of net detriment. Yet even though tht
need for such mistrust-reducing measures i:
so evidently growing, it seems that Moscow
has not chosen to act in such a manner, a
failure which is becoming more and more c<
spicuous and damaging.

Clearly, there is a gap between the
way certain states conduct business
today and the way they promise they
will behave under a convention bannin;
chemical weapons. And it is simply not
possible for a nation to yield national
control over its own defense to an inte
national agreement— as we will be aski
to do when we have a convention read;
for signature— on the basis of a mere
promise of a new and better pattern ol
behavior by other states.

The Soviet Union says it is
interested in real openness. But will it:
deeds in this forum match its words? V
hope so. We hope to see signs of real
glasnost, here in this forum, in the
coming weeks and months.

I believe that a turn to real glasnoi
could transform our discussion and
sweep away a host of difficulties. I
believe it could remove the barriers th;
some have attempted to erect to the
inspection procedures absolutely essen
tial to make a chemical weapons ban
worth the paper it is printed on. Genui
openness, real glasnost, were it to
emerge in the Soviet Union and in the
Soviet Union's dealings with the rest o
the world— nothing could be more
welcome to Americans. Nothing would
do more to make possible progress in t
relationship between our two govern-
ments. Nothing would so improve the
prospects not only for real advances in
arms control but for the entire cause ol
world peace. Nothing would be a bettei
tribute to your dedicated and importan
work. Nothing would be a better monu
ment to Donald Lowitz's work and
life. ■

DEPARTMENT

Underfunding and Undermining
Our Foreign Policy Infrastructure

»y Ronald I. Spiers

Statement before the Subcommittee
In International Operations of the House
foreign Affairs Committee on February
f6, 1987, and excerpts from a statement
\efore the Subcommittee on Commerce,
Yustice. State, and Judiciary of the
House Appropriations Committee on
larch k, 1987. Ambassador Spiers is
index Secretary for Management.' 1

EBRUARY 26, 1987

am here today to discuss the Presi-
dent's authorization request for the
department of State.

In 1987, the President's budget
lequest for State Department operations
''as cut by $1.3 billion; the effect of this
i ut has been further exacerbated by
; verseas inflation and exchange-rate
isses, which have reduced our purchas-
lg power by another $55-$60 million.
The Department of State, which is
. le oldest and clearly one of the most
nportant departments of the govern-
lent, is also one of the smallest. The
ost of the State Department's opera-
ons at home and abroad amounts to
nly four-tenths of 1% of the Federal
udget. The cost of a single Trident sub-
larine could pay the salaries and
xpenses for all State Department
perations, including our more than 250
osts overseas, for a year, leaving some
! ver to help us enhance our much-
eeded security programs.

As it stands now, these deep cuts in
ur budget are severely damaging
•tate's foreign policy infrastructure;
hey will force us to renege on treaty
bligations to international organizations
' nd leave us no choice but to defer into
he indefinite future security programs
o protect our people and facilities
broad from international terrorism.

Even before the latest fiscal blows,
re were making plans to reduce our
: -verseas personnel by about 4%. We are
liring fewer people this year. Many
acancies simply will not be filled. We
Lre also facing as much as a 7% cut,
hrough attrition, in personnel
'lomestically.

To date, we have hauled down the
lag at seven of our consulates overseas.
We are now in the process of closing
;even more posts. Our overseas posts
iire the capillaries of our diplomatic
iiystem; they enhance our ability to

gather information, to expand our con-
tacts and influence, and to provide serv-
ice to American businesses and our
citizens abroad.

In addition, this year we will not be
able to fund fully our language programs
at posts overseas— and this at a time
when it is important to improve our
officers' language capabilities. This year,
we've had to postpone urgent security
construction projects in Ankara, Berlin,
Rabat, and Brussels. We've had to cut
our plans for high-speed telecommunica-
tions circuits by half and cancel 85% of
our planned replacements of emergency
radio systems worldwide.

We have requested a fiscal year (FY)
1987 supplemental of $119 million to
help us carry out our most critical pro-
grams over the next year until FY 1988.
These funds, if approved, would help us
ensure that the basic foreign policy
infrastructure is maintained in the State
Department.

We are all concerned that funding at
the levels currently in prospect will
translate into a serious weakening of the
Department of State, our nation's insti-
tutional arm for conduct of foreign
policy. Unfortunately, rather than deter-
mining foreign policy goals and objec-
tives that are best for the people of the
United States and providing the financ-
ing necessary to achieve these goals, we
are letting resources constrict our
foreign policy.

If we are to continue our role as a
world power, we must be prepared to
fund a foreign affairs policy and pro-
gram budget of the size and dimension
to support it.

For FY 1988, the Department is
requesting authorizations for appro-
priations totaling $3,609,768,000. This
represents an increase of $541,831,000
above our FY 1987 funding level, assum-
ing, as we must, approval of supplemen-
tal appropriations. In this bill, as submit-
ted by the Administration, we are
requesting current authorization of
$3,104,099,000. In addition, we plan to
utilize permanent authorization totaling
$85,958,000 for payment to the Foreign
Service Retirement Fund; $416,911,000
of the $417,962,000 authorized by the
Omnibus Diplomatic Security and Anti-
Terrorism Act of 1986; $1 million for
the Fishermen's Protective Fund and
$1.8 million for the Fishermen's
Guarantee Fund authorized by the
Fishermen's Activities Authorization
Act of 1986.

For FY 1989, we are requesting
authorizations for "such sums as may be
necessary."

We are keenly aware of the part we
must play in the President's and Con-
gress' efforts to reduce the Federal
budget deficit. We are presenting an
austere budget that continues our ini-
tiatives in the security and substantive
reporting areas but absorbs reductions
in crucial administrative support areas.

Fiscal Year 1988 Authorization

The 1988 budget request covers four
categories of appropriations as follows:

First, we request $2,737,141,000 for
the administration of foreign affairs— to
cover the Department's basic diplomatic
and consular functions, salaries, operat-
ing expenses, allowances, overseas
building construction and maintenance,
and diplomatic security.

Our request is a $520.4-million net
increase from the FY 1987 level and has
the following components:

• $250 million for salaries and
expenses, $51.8 million of which is for
the implementation of the new Federal
Employees Retirement System; $62.7
million for wage and price inflation; and
$104.7 million for the diplomatic security
program;

• $310 million for buildings pro-
gram, of which $211 million is for the
diplomatic security program; and

• Savings of $41.4 million, reflecting
a reduction in the Foreign Service
Retirement and Disability Fund.

Second, in the category of inter-
national organizations and conferences,
the Department requests $506 million to
cover assessed contributions to inter-
national organizations of which the
United States is a member, contributions
for UN peacekeeping activities, and
American participation in multilateral
international conferences.

Third, under the heading of inter-
national commissions, $32,706,000 is
requested to meet our treaty com-
mitments under boundary agreements
with Canada and Mexico— and to cover
our share of expenses as a member of 11
international fisheries commissions.

Finally, in the "Other Appropria-
tions" category, we are requesting
$333,921,000. The largest part of this
category will provide assistance to
migrants and refugees through contribu-
tions to a variety of international
organizations and voluntary organiza-
tions including the Intergovernmental
Committee for Migration, the UN High
Commissioner for Refugees, and the UN
Relief and Works Agency. Also included

/lay 1987

DEPARTMENT

in this category are resources for
bilateral science and technology
agreements with Yugoslavia, the Asia
Foundation, and the Soviet-East Euro-
pean Research Training Fund.

Technical Provisions in

FY 1988-89 Authorization Bill

In addition to our request for authoriza-
tion of appropriations, our draft bill this
year contains several additional sections,
largely of a technical nature. Among the
more important are proposals to:

• Provide a statutory pay basis for
the Directors of International Telecom-
munications Policy and the Office of
Foreign Missions, reflecting their status
as presidential appointees, and adjust
pay levels for ambassadors at large;

• Modify the authority provided by
the Foreign Service Act for use of
limited appointments for specific pur-
poses such as consular agents;

• Provide certain benefits, com-
parable to those provided to CIA [Cen-
tral Intelligence Agency] former spouses
last year, for former spouses of members
of the Foreign Service not now eligible
for them because their divorces occurred
prior to February 1981; and

• Provide certain insurance author-
ity for the Diplomatic Reception Rooms
and for liability coverage related to
official activities abroad.

The subcommittee has been provided
with the full text and explanation of
these and the remainder of the amend-
ments. With your permission, I ask that
a short summary of them, which we have
prepared, be inserted in the record.

Effects of Proposed Cuts

We have suffered severe cuts in funding
to support the foreign affairs infra-
structure. These cuts have been com-
pounded by the effects of fluctuations in
exchange rates, differing rates of infla-
tion between the United States and the
countries in which we maintain missions,
and continuing need for expenditures to
enhance the security of our posts and
personnel abroad. These factors in com-
bination have led to a weakening of our
foreign affairs infrastructure. The toll is
great since discretionary spending is
only a small portion of the total foreign
operations budget. But when we were
forced to make cuts, they had to be
made in "discretionary" areas. These
turn out to be areas where cuts under-
mine the ability of the foreign affairs
establishment to function as it was
intended; for example, in travel for con-
sultation and investigation and in
language training. This has resulted in

closed posts, elimination of positions,
reduction of intake into the Foreign
Service, and deferral of needed
maintenance projects. The damage will
be even worse in years to come.

What does this mean in the real
world? It means that the political officer
seeking to understand developments in a
major European country can no longer
attend a political party convention,
thereby reducing his contacts with prac-
ticing politicians. Those contacts are the
bread and butter of his job. Not only
does he glean from them information
about political developments, he also
uses them as an opportunity to seek sup-
port for U.S. policies. Such contacts are
also, by their very nature, a demonstra-
tion of the U.S. commitment to work
cooperatively with other countries. The
cuts also mean that the young officer,
who should be continuously enhancing
his knowledge of foreign languages and
cultures, will not be given the oppor-
tunity to achieve language fluency and,
thus, a greater degree of understanding
of the nation in which he finds himself.
It means that developments which initi-
ally could seem minor, but which may
grow to be of major importance to the
United States, are more likely to be
missed.

Similarly, there is the economic or
commercial officer who, because of
travel restraints, is not able to carry out
our program of export promotion. How
many trade opportunities will be missed?
How many chances to establish agency
or licensing relationships for American
firms? What opportunities to bid on
major government projects go
unreported? What are the costs of these
missed opportunities in terms of reduc-
tion of our trade deficit and jobs in the
export sector of manufacturing and
agriculture?

And what of U.S. citizens abroad
who depend on the foreign affairs infra-
structure as their lifeline to America?
What happens to the American in prison
when his only tie to home— a visit by a
U.S. consular officer— is no longer pos-
sible because there are no funds? What
happens when, because of cuts, the staff
of a consular section must delay process-
ing a passport or registering a birth
abroad? What happens to American
tourism and the dollars it provides for
our economy if visas can no longer be
issued expeditiously? What happens
when checks of visa applicants are not as
thorough as they should be in today's
troubled world?

These are illustrative of the prob-
lems we face if we permit our dedicated,
career foreign affairs infrastructure to
atrophy. Obviously, the men and women
of the foreign affairs agencies will do the
best job possible, whatever the resource

constraints, but it will not be the job w<
have come to expect. We have put for- I
ward a budget which is exceptionally
lean. Even with full funding, given inte
national economic realities, further
reductions of posts and personnel abroj |
may be inevitable. Reductions in that
proposed funding by the Congress can !
only make conditions worse.

At stake is our ability as a nation tc I
understand and influence the world we
live in. It is in no one's interest to make 1
the State Department primarily a sup-
port mechanism for other Federal agen
cies, thereby weakening the agency
which coordinates and takes into accoui i
all U.S. Government activities abroad
and all interests of the United States.
We cannot cut away personnel and posi ;
tions and reduce training and the tools
necessary to perform diplomatic func-
tions and still retain the corps of
qualified and experienced people needei
to carry out the diplomacy of the Unitei
States. We risk having other nations
interpret our cutbacks as a sign of the
withdrawal of the United States from a
active, global role.

Security and
Construction Programs

Let me turn to some specifics. My
purpose here is to move from the broad
level to more focused ones by inviting
your attention to some of our most
prominent— and controversial—
programs. While we fully understand tl
dilemma the Congress faces under cur-
rent budgeting limitations, I think it is
my responsibility to try to drive home
some realities of our efforts abroad,
which are currently in serious jeopardy.

Diplomatic Security. Let me begin
with a brief discussion on the issue of tr
security of our installations and person-
nel abroad, since this will be covered
more comprehensively in a later session

Last summer, the Congress passed
and the President signed the Omnibus
Diplomatic Security and Anti-Terrorism
Act of 1986. This landmark legislation,
which resulted from careful crafting by
the Congress, gave us a major start on
the authority and resources necessary tc
implement the recommendations of the
Advisory Panel on Overseas Security
chaired by Adm. Bobby Inman.

This legislation authorized $2.4
billion to launch a worldwide diplomatic
security effort. Consequently, we have
begun a multiyear program to replace
and upgrade facilities at our most
vulnerable posts overseas. The Inman
panel found that buildings at 134 of our
263 posts were substantially below
minimum security standards. This led to
our joint commitment to begin the most
extensive construction program in the

DEPARTMENT

Department's history. To complement
.hat, we also have upgraded security at
■nany of our most threatened posts. We
iave installed specially designed walls
tad gates at 74 posts where they were
^specially necessary and have made
Inajor security improvements at 107
!>ther posts. And we have initiated steps
'o strengthen our ability to defend
gainst the increasingly sophisticated
fforts of hostile intelligence agencies.

While the embassies themselves con-
inue to be the principal targets of the
errorist, we are also highly concerned
«th the safety of Americans abroad out-
ide the workplace. We are attacking
his problem in two ways.

First, since the personal security of
ur employees and their families
epends, in large measure, on defensive
kills, we are expanding our security

• wareness training for employees and
neir dependents. During the past year,
!ur security experts also have visited 30

ritical and high-threat posts to instruct
•■ mericans and foreign national

mployees in protective tactics such as

ersonal defense, hostage survival, and

sfensive driving.

Second, we are implementing a
> 'sidential security program which

eludes installation of mechanical
. icurity systems; augmentation of guard

rces and enhancement of their mobil-
i y; and improved communications

inabilities.

We are also improving exchanges of
telligence with our allies and com-
unication among U.S. agencies. The
?w interagency threat-alert system has
iproved our ability to give our
nbassies— and American communities
/erseas— early warning of impending
iti-American terrorist action and
lalyses of terrorist threats and trends.
American business overseas has also
^cognized the need for action as the

:- ireat of terrorism abroad has increased.

Ii 1985, we established the Overseas

. ecurity Advisory Council, comprised of

" ?presentatives of other interested U.S.

t jencies and American business organi-
itions, to provide an institutional link

■ stween the government and the private
;ctor on security matters. Under its

! 2gis, more than 120 corporate security
irectors and representatives of public
iterest groups, as well as 138 sub-
diaries of U.S. firms, participated in a

iorvey of the security needs of the

• .merican private sector overseas.

With the programs to provide for the
nost urgent security needs of our people
jbroad initially funded and underway,
ij'e are now shifting the focus of our
fforts toward programs which will
nhance our technical security posture.

When added to ongoing require-
ments of $157.3 million and 536 posi-
tions, these program increases result in
a total FY 1988 diplomatic security
budget request of $231.7 million and 794
positions. This is much to ask in a year
of severe budgeting constraints, but I
believe both the Congress and the
Executive want to provide the resources
to take these needed steps.

Foreign Buildings. In an area
which is closely related, let me now turn
to our construction program.

As we all know, there has been
criticism of the past performance of the
Office of Foreign Buildings (FBO). Some
was absolutely justified. However, in the
past 3 years, we have done much to
improve FBO's management and
procedures.

Indeed, such examples of misman-
agement as the ambassador's residence
in Cairo and several other projects of the
late 1970s and early 1980s provide
neither a fair nor an accurate assess-
ment of FBO's current capabilities and
performance. In recent years, FBO
successfully completed six major con-
struction projects and, in particular, in
the last 18 months, there have been
major improvements in FBO's leader-
ship, management systems, and in the
quality of its personnel. FBO has moved
successfully from managing an average
of four or five large projects a year to
managing a current program of 61 major
projects and several hundred small ones.

FBO has also contracted with Sver-
drup Corporation for program manage-
ment services. This is a contract which
has been very satisfactory and which will
bring private sector expertise to all
aspects of FBO's operations, both in
terms of ongoing projects and in terms
of transferring contemporary program
management techniques to FBO. FBO is
undergoing a reorganization to provide a
structure which is capable of rapidly
integrating these new management proc-
esses and systems brought to the
organization by Sverdrup and has, most
importantly, established a system of
management responsibility and account-
ability for each project.

We will continue to work closely
with Congress in furthering our joint
efforts in this area, but my concern is
that FBO needs a period for consolida-
tion of efforts already underway— with
reality being closely monitored by us and
in the Congress— before continuing on
another round of organizational and pro-
cedural changes.

Next, let me take up several of our
other programs which are of major
importance and which require your at-
tention as our authorizing committee.

Contributions to
International Organizations

Armed with the clear requirements of
congressional action, we succeeded last
December in having the United Nations
take what the President has described as
"an historic step to adopt sweeping
reforms of its organization and methods
of operation .... designed to strengthen
the organization's effectiveness and effi-
ciency in carrying out its important
political, economic, and social objec-
tives." To follow through on these
important reforms and to extend them
to the specialized agencies, we need the
continued active support of the
Congress.

The UN General Assembly estab-
lished a consensus-based procedure for
decisions on the overall size and program
priorities of the UN budget. The United
States and other major contributors now
have the possibility for greatly increased
influence over the management of UN
resources. Properly used, this will have a
significant and positive impact on the
overall UN political process.

Followthrough on the reforms
achieved in New York requires modifica-
tion of the Kassebaum/Solomon amend-
ment (Section 143 of P.L. 99-93) to take
account of these reforms and a cor-
responding budget amendment. The suc-
cess in the UN reform negotiations came
too late to be reflected in the President's
budget. The Administration is currently
considering options to follow through on
this issue.

The significant accomplishment in
New York represents the culmination of
6 years of serious effort by the executive
branch, working in concert with the Con-
gress. Continuation of this combined
effort is necessary at this critical stage
in order to take advantage of the
possibility we now have for effectively
reasserting important U.S. interests
through our strengthened participation
in the United Nations and other inter-
national organizations.

Our membership and active partici-
pation in international organizations
benefits us in many ways. They provide
permanent forums in which we seek sup-
port for our policies, our interests, and
our values, as well as to pursue multi-
lateral programs which advance those
interests. They provide a means of
settling disputes peacefully, furthering
human rights, and promoting coopera-
tion in development assistance,
agriculture, technology, health, and
transportation. They also provide a
means of access to legal decisionmaking
and arbitration through courts and
administrative bodies operating at inter-
national levels.

lay 1987

DEPARTMENT

Consular Operations

Perhaps the most visible casualty to the
necessary budget reductions is the
quality of our consular operations both
at home and abroad. Without adequate
resources to hire temporary help, the
department will not be able to issue
passports or nonimmigrant visas as
rapidly as we now do. Today, we issue
the majority of our passports either the
same day or within a 10-day period if the
application is mailed in. At most of our
posts, we issue nonimmigrant visas
either the same day for walk-ins or
within 3 days for mail-in applications.
Because there are peak seasons in both
categories, over the years the Depart-
ment has made a conscious management
decision to hire only that permanent
staff needed to process normal demand.
To do otherwise would not be a judicious
use of our limited resources. To meet the
peak season demands, we have relied
solely on temporary personnel to carry
us through without creating enormous
backlogs. We recognize, as do you, the
complaints you receive when citizens or
aliens have to wait for our services.

The time has come when we may
have to live with the frustration of our
citizens and the disappointment of those
aliens who want to visit our country for
business or vacation purposes. We will
do what we can to explain the reasons
for the delays. More troubling, however,
is the foreign exchange income the
United States would lose in tourism
revenues because of the delays which
will inevitably result from a cutback on
all services. The reduction in services
comes at a time when the majority of
our European and Japanese posts are
being swamped by a record increase in
the demand for nonimmigrant visas.

We have no choice but to cut back.
For example, the Bureau of European
Affairs' budget has been hard hit, not
only by reduced budget authorizations
but by the strengthening of foreign
currencies against the U.S. dollar. There
is no money for "summer hires" to carry
us through the deluge of applications we
are receiving. Embassy London's nonim-
migrant workload is up 30% over last
year, and the consular section has had to
take some very drastic measures to keep
up with the demand, including closing
for 1 day and shortening the hours of the
visa information counter to half-days
only. Even so, London is not sure how
long they can stay current. Embassy
Bonn estimates that it will have a short-
fall of 6,248 staff -hours, representing
34,000 visas. If German citizens follow
their normal pattern, they take 3-4
weeks' holiday and probably spend a
minimum of at least $500. That is $17

million in lost revenue from the Bonn
consular district alone.

Another seriously affected service
will be our ability to visit American
prisoners. We simply do not have the
travel money at a number of posts to be
able to maintain the same schedule of
visits where American citizens are incar-
cerated in prisons which require any
long-distance traveling. During 1986,
2,827 Americans were reported arrested
in 101 countries. Of these Americans,
1,369 were jailed, the majority of them
in developing nations. We believe fre-
quent visits are necessary to assist with
widely variant judicial systems, sluggish
bureaucracies, culture shock, and health
problems. Yet prison visits are costly.
Embassy Mexico, for example, regularly
has Americans imprisoned in 10 cities
outside Mexico City. Each visit entails
travel funds and approximately 2 days of
an officer's time. While there may be few
prisoners in Fiji, the consular district is
large and officers must travel significant
distances to prisons on Tahiti and other
islands. In Canada, Calgary has four
Americans imprisoned 500 miles from
the post and has several other prisons
located outside a 1-day trip. We have to
begin thinking about cutting down the
number of personal visits and conducting
visits by telephone.

Finally, until we know the fate of
our supplemental requests, we have to
worry about how we fund the substantial
costs associated with implementation of
the Immigration Reform and Control
Act of 1986.

Refugee Programs

The American people have demonstrated
a deep and enduring commitment to pro-
viding assistance to victims of political
repression. Addressing world refugee
needs through international assistance
programs overseas and resettlement of
refugees to the United States continues
to be an important U.S. foreign policy
goal. Besides its humanitarian goals,
refugee programs also address other
foreign policy concerns through support
of developing country governments
which are shouldering the burden of sup-
porting needy refugees while trying to
meet the needs of their own citizens.

For these key programs, the Depart-
ment is requesting an authorization of
$314.5 million for FY 1988, a reduction
of $32.4 million from the FY 1987 appro-
priation. At this level of funding, we pro-
ject that the United States will maintain
its position as an acknowledged world
leader in assisting more than 8 million
refugees worldwide through annual con-
tributions of more than 25% of multi-
lateral and bilateral refugee programs.

We estimate that we will welcome
approximately 55,000 refugees to a nev
homeland in the United States. (The
actual refugee ceilings will be deter-
mined by the President in consultations
with the Congress shortly before the
beginning of the fiscal year.)

MARCH 4, 1987

We have requested a FY 1987 sup-
plemental of $119.5 million to help us
carry out our most critical programs
over the next year until FY 1988. Thes<
funds would help us ensure that the
basic foreign policy infrastructure is
maintained in the State Department.
For salaries and expenses we are
requesting a total of $83,384,000 in sup
plemental funds for the following items

• $30.7 million for 1986 exchange
rate losses.

• $16.7 million for overseas wage
and price inflation.

• $3.5 million and 55 positions
needed to establish a new Inspector
General (IG) function in the Departmen
This was mandated in August 1986 by
the 1986-87 Foreign Relations Authori
zation Act and by the Omnibus Diplo-
matic Security and Anti-Terrorism Act
of 1986. In response to congressional
wishes at that time, we transferred son
resources for this new IG from the
former Foreign Service Program Inspe
tor General's Office. The new IG office
now moving at a reasonable pace towar
full organization and is heavily engagec
in responding to requests for investiga-
tions and audits. The supplemental re-
quest covers roughly one-half of the
amount needed in 1987 to continue
orderly development of this function.

• $3.1 million and 39 positions to
carry out the requirements of the
Immigration Reform and Control Act o
1986. The Immigration Reform and Coi
trol Act of 1986 impacts heavily on
Department of State consular work-
loads, primarily in Mexico. The act
creates new categories of immigration
documents for special agricultural
workers (SAWs), establishes a new tem
porary agricultural worker category
(H2A), and provides for the issuance of
additional immigrant visas (NP-5). The
$3.1 million is requested to fund staffin
temporary duty, automation, space ren<
vation, and communication expenses
which will be incurred in launching this
program. These funds will support the
issuance of 200,000 SAWs, 100,000 H2,
visas, and 10,000 NP-5 visas.

Department of State Bulletii

DEPARTMENT

• $16.7 million for the new Federal
»mployee retirement system.

• $6.9 million for partial funding of
he January pay increase for American
imployees.

• $800,000 and 3 positions for the
Conference on Security and Cooperation
Jn Europe.

• $5 million to provide a U.S.
'national gift to the Australian
ncentennial.

We are requesting a one-time sup-
plemental of $21.6 million for the con-
i ributions to international peacekeeping
Activities account. This supplemental will
Jt-artially offset arrearages in the assess-

lent fund to the UN Interim Force in
r .ebanon (UNIFIL).

UNIFIL remains an important ele-

lent of stability in south Lebanon and
(lould play a key role in future security

rrangements between Lebanon and
Israel. Support for UNIFIL has been an
t. nportant and longstanding element of
Ihe U.S. effort to bring peace to the
lliddle East. Recent attacks against
| INIFIL troops by groups who view the
1 Dree as giving protection to Israel have
laised serious doubts among the con-
■i -ibutors about the safety of UNIFIL
j *oops. These concerns are compounded
I y the financial burden imposed on the
I -oop contributors by recent cuts in the
{ f.S. financial contributions to UNIFIL,

'hich represent about 30% of the force's
^ perating budget. These cuts have also
I rought into question the steadfastness
I f U.S. support to UNIFIL. Partial
>| sstoration of these funds, in addition to
I elieving a financial burden, would be a

i Dncrete indication that the United

tates will not halt its efforts to bring

• eace to the region.

For the acquisition and maintenance
. f buildings abroad, $12 million is

, equested for acquisition of a site and
I rchitectural and engineering plans for
I uilding a new embassy complex in San
Salvador, El Salvador. The compound

nil include an office building chancery,
Ij.S. Agency for International Develop-
ment office building, ambassador's

esidence, and marine security guard
i uarters.

Supplemental funds are necessary
j or new facilities because the main
; hancery office building, located on the
■ ;overnment-owned compound in down-
ijown San Salvador, suffered extensive
litructural damage in the October 1986
jjarthquake.

A one-time request for $2 million is

[.ought to support activities generated

linder the 1986 U.S-Brazil science and
; jechnology agreement. The funds would

be allocated to the various U.S. technical
agencies. They would be used to initiate,
on a matching-contributions basis, an
intensive program of science and tech-
nology based firmly on jointly managed
projects of original investigation.

For American sections of inter-
national joint commissions, we are
requesting a supplemental increase of
$600,000. This supplemental will enable
the international joint commission to
fund a study of rising water levels of the
Great Lakes.

During the past 2 years, water levels
in the Great Lakes have exceeded their
record maximum elevations, causing
hundreds of millions of dollars of
damage to shoreline interests in both the
United States and Canada. This trend is
expected to continue into the foreseeable
future and, in the absence of remedial
measures, there exists the danger of
disaster. In response to this situation,
the Governments of the United States
and Canada have requested the commis-
sion to examine measures that might be
taken to alleviate the advance effects of
fluctuating water levels. This request
calls for an interim report within 1 year
and a final report no later than May 1,
1989.

Finally, we are requesting restora-
tion, in FY 1987, of $130 million in
outlay authority for the contributions to
international organizations appropria-
tion, which was reduced by the continu-
ing resolution. The $225 million available
for expenditure in FY 1987 amounts to
an availability of less than 60% of funds
requested to meet our assessed contribu-
tions. Restoration of this outlay author-
ity will enable the United States to meet
its assessed commitments in a timely
fashion and ensure that our voting rights
within the various international
organizations are maintained. Deferral
of these outlays until 1988 would present
many of the international organizations,
such as the Organization of American
States, with severe cash-flow problems
and possibly place U.S. voting rights in
jeopardy.

In summary, I would like to reiterate
that these supplemental appropriations
are vital to help us carry out our most
critical programs. In fact, 65% of the
requested amount must be paid in
accordance with statutory or mandatory
requirements.

'The complete transcript of the hearings
will be published by the committee and will be
available from the Superintendent of
Documents, U.S. Government Printing
Office, Washington, D.C. 20402. ■

How Much Security
Is Enough?

by Robert E. Lamb

Address before the Discover Con-
ference on Terrorism in a Technological
World on January 22, 1987. Mr. Lamb is
Acting Assistant Secretary for
Diplomatic Security.

I have been asked to talk with you today
about the question of "how much secu-
rity is enough" and, at the same time,
tell you how to put together a security
budget. Actually, this is two sides of the
same coin.

I remember, some years ago, I
served with a crusty budget and fiscal
officer who had been in Tokyo when a
Japanese mob broke into the consulate
general at Kobe-Osaka and had beaten
up the consul general. In response, the
Department came up with something
like a quarter of a million dollars to pro-
tect the consulate. We'll call this officer
"Larry." Larry was furious. "Are we
going to spend a quarter of a million on
every embassy and consulate in the
world," he asked. "How much is a consul
general worth?"

Simply stated, his approach was that
we should recognize that an occasional
consul general would be beaten up— and
write that into the job description. Every
consul general would then take his or
her chances.

In those days, each ambassador was
given a great deal of discretion over the
level of security at an embassy. There
were few security practices which were
mandated from Washington. The man-
dated security primarily governed the
protection of classified information. Pro-
tection of diplomatic buildings and peo-
ple against violent attack was largely
discretionary— in large part because this
kind of security was seen as the respon-
sibility of the host government.

Then, in 1979, our embassy in Libya
was stormed and burned, and our
embassy in Iran was occupied, which
began the long national ordeal with our
hostages in Tehran. Those episodes
showed that there were some countries
we couldn't count on to protect us. As
self-evident as this may seem today, it
was a major departure from interna-
tional practice in 1979.

May 1987

DEPARTMENT

In 1983 and 1984, we suffered mass
casualty attacks against our embassies in
Beirut and Kuwait and our embassy
annex in east Beirut. "Car bombs"
forced themselves into our vocabulary.
These attacks further eroded the basic
premises on which embassy security
strategy had been built. If the 1979
attacks revealed limits to the willingness
of some foreign governments to protect
us, the 1983-84 attacks showed
dramatically the limits of their ability to
protect us.

Today, it is recognized throughout
the world that embassy security is a
shared responsibility. Some countries
can provide better security to an
embassy than others. But all countries
look to the embassies themselves for
basic security measures. No government
can protect American embassies today
without some help from us.

Formulating a New
U.S. Security Strategy

In 1984, we were going through a sea
change in the field of embassy security,
and the U.S. Government needed a new
security strategy. Secretary Shultz
turned to Admiral Inman and a very
distinguished panel of American officials
to help us devise such a strategy. The
result was the first comprehensive
rethinking of the embassy security pro-
gram in decades.

One of the conclusions we reached
was the unacceptability of leaving so
much discretion in the hands of the
ambassador. The loss of an embassy to a
mob or to a powerful bomb has national
policy implications. Accordingly, it can-
not be dealt with on a post-by-post basis.

The U.S. Government established, as
a matter of national policy, that no
embassy anywhere in the world be
vulnerable to seizure by a mob or to a
vehicle bomb. As a result of that deci-
sion, we embarked on three major pro-
grams to protect our embassies:

• The Public Access Control Pro-
gram, to control the flow of people into
our chanceries;

• The Perimeter Security Program,
to keep mobs and intruders off the
embassy grounds; and

• The Security Construction Pro-
gram, to build new embassies at higher
threat posts where existing buildings are
just undefendable.

There are specific standards for all
three of these programs. They are based
on some serious research. For example,

the 100-foot setback for new embassy
buildings is based on a very specific for-
mula calculated from the pressure
created by an explosive blast on the sur-
face of a building built to certain
standards.

We found that over half of our
embassies fell substantially below
minimum security standards; not just
didn't meet standards— they were
substantially below. In establishing the
building program, we obviously had to
set priorities. We did; and we based
them on the dual criteria of risk and
vulnerability.

One criterion we rejected was
importance of a post. This issue surfaced
particularly in Africa. For example,
some asked why we put so much money
into security in a country that is unim-
portant to U.S. national interests. That
issue was seriously debated, and we con-
cluded that we will protect all posts
based on threat and vulnerability. We
cannot, in good conscience, say that
someone serving his country abroad
would get less protection than needed
because the country in which he or she is
serving may be less important to us.

A variation on our policy is the
macho ambassador who says, "I do not
want protection. Security infringes on
my privacy or my self-image." Because
the murder or kidnapping of any
embassy employee— and especially an
ambassador— has a political cost to our
nation as a whole, that attitude is unac-
ceptable. Our Foreign Service is not
abroad as individuals but as represent-
atives of our government. We cannot
afford not to protect them.

Protection Outside the Workplace

Safe embassy buildings are clearly the
keystone of our security policy. But we
cannot stop there. We have a respon-
sibility for our employees and their
families which extends beyond the work
place.

As we harden our embassies, we have
seen the threat shifting to other,
so-called softer targets: the La Belle
disco bombing in Berlin, the shooting of
the marines in the sidewalk cafe in San
Salvador, the shooting of our "off-duty"
communicators in Sanaa and Khartoum.

Anticipating that shift, we set up
three new programs:

• Residential security, to protect
our employees and their families outside
the office;

• More armored vehicles, to proteci
employees going to and from work; and

• Security awareness training, to
help employees and their families protec
themselves.

A fourth, related program is our
increased liaison with the private sector
In 1985, we assumed the business com-
munity would also start to become sec-
ondary targets as the embassies became
more secure. Mainly, this program aime
at helping the private sector protect
themselves by sharing information on
threats and on protective techniques.

Incidentally, we have not seen that
crossover targeting happening. There is
little documentable evidence of a shift
from government to business targets.
Some terrorist groups target official
U.S. Government activities; some targei
the private sector; some even target
both. But we have not seen groups whic
concentrate on government targets sud-
denly saying, "The embassy is too
secure, let's go down and blow up our
local Coca-Cola plant."

Security Against Espionage

As a backdrop to the terrorist threat
against our embassies, we saw another
security threat looming larger. In the
summer of 1984, we found that the Rus-
sians had gotten their hands on a
number of typewriters which were beinj
shipped to our embassy in Moscow.
While under Russian control, the
typewriters were implanted with device
which recorded characters being typed
on the typewriter and transmitted them
to a nearby KGB listening post.

The sophistication of that attack
showed us that we had not done enough
in technical security. Successive budget
cuts over the years had whittled away a
our counterespionage program to the
point that, by the early 1970s, our
embassies were increasingly vulnerable
to foreign intelligence services. Our
handful of engineers were fixing the
growing volume of security equipment a
our posts. Our counterespionage pro-
gram atrophied. The Department's new
security program has sought to restore i
strong defensive capability. The Moscow
typewriter incident drove home the need
to do a better job of protecting our
embassies against spies as well as
terrorists.

The Security Budget

How did we translate these principles
into a budget? The budget itself was a

Department of State Bulletir

EAST ASIA

'latural product of our new program—

almost a technical outgrowth. Any public
>olicy should have two essential

.■lements before it can be implemented.

K should be a sound program with solid
tublic support. By 1986, we had both.
There was a broad consensus behind

"mbassy security. The American people

'o not like to see pictures on the evening

fV news of foreign mobs occupying and
urning our embassies. They do not like

b have fanatics blowing up our buildings
nd killing our people. And they do not
ke having the Russian KGB bugging
ur typewriters and our buildings. The
lessage was loud and clear: do

omething about it.

With the Inman panel recommenda-
ons, we had the first prerequisite: a
jund program. That entire program
as scrutinized more carefully than any
overnment program with which I have
/er been associated— scrutinized within
le Department, by OMB [Office of
management and Budget], by the Con-
fess, and, ultimately, by the press and

! l informed public.

The budget request was the principal

, ;hicle for that scrutiny and that debate.

I argely as a result of budget reduction
•essures, we received much less money
tan we expected— $1 billion in 1986-87

I >mpared to the $2 billion we requested,
he implementation was stretched from
years to 5. But the program remained

: tact.

I cannot emphasize enough that the
ldget must flow from the program and
)t the program from the budget. But
:cause public programs tend to be tied
i closely to money, the annual budget

I r cle subjects them to continued
rutiny. In the 1988 budget cycle, the
epartment of State must once again
;k whether security continues to enjoy
e same priority. Do we want security
'en if budget stringencies are forcing

i > to close consulates? OMB weighs the
lative worth of embassy security to
her government programs. In the 1988
ldget process, the executive branch has
ood behind its commitment to protect
it embassies and the people who are
■rving our country abroad. The ques-
on is now once again put to the
ongress.

rogram Successes

i ongress will also inquire into how suc-
cessfully we are implementing the pro-
I'am. There, too, we have a good story
ii tell. The attacks against our
nbassies have not declined, although

they rarely make the newspapers these
days. In 1986, we had three car bomb
attacks against embassy facilities in
three countries. Mortars or rockets were
fired at four embassies. Bombs were
thrown at two, and there were thwarted
attempts at even more. Several were
strafed with automatic weapons fire. We
have had innumerable intelligence
reports of terrorist groups who have
cased our embassies and found the
security so good they canceled the
operation.

On the intelligence side, in 1986 we
uncovered and neutralized five technical
efforts directed against our facilities-
more than we found in the entire
previous decade.

Protecting our embassies is only one
part of our government's total antiter-
rorism program. But it is an important
part. Here, too, we have told those who
would attack us that we are going to
defend ourselves. ■

The Cambodian Issue

by John C. Monjo

Statement before the Subcommittee
on East Asian and Pacific Affairs of the
House Foreign Affairs Committee on
March 11, 1987. Mr. Monjo is Deputy
Assistant Secretary for East Asian and
Pacific Affairs. l

I am honored to be here today to discuss
Cambodia. We value congressional sup-
port for the Administration's efforts to
achieve a peaceful solution to this tragic
conflict.

As you know, the Administration
remains adamantly opposed to Viet-
nam's occupation of Cambodia and
strongly supports ASEAN's [Association
of South East Asian Nations] efforts to
block Vietnamese attempts to subjugate
that country. We remain committed to
maintaining maximum pressure on
Hanoi to recognize that it is in
everyone's interest— including theirs— to
enter into serious negotiations which will
end the fighting and lead to the
withdrawal of People's Army of Vietnam
(PAVN) troops. The Administration also
remains adamantly opposed to a return
to power of the Khmer Rouge in Cam-
bodia and has made our position clear to
all involved parties.

Our desire for Cambodia is the
establishment in Phnom Penh of a
democratically elected government
which reflects the will of the Cambodian
people and which is not susceptible to
outside manipulation. We believe that a
settlement which encompasses these
objectives and addresses the legitimate
interests of the principal parties
involved, including the Vietnamese, is
possible.

Results of ASEAN Leadership

The Administration continues actively to
support the ASEAN lead in the search
for peace in Cambodia. The member
states of ASEAN, individually and col-
lectively, have skillfully developed inter-
national opposition to Vietnam's occupa-
tion of Cambodia. In part as a result of
these efforts, Vietnam now finds itself
more isolated than ever before. In the
United Nations, the General Assembly
resolution calling for Vietnamese
withdrawal and self-determination for
Cambodia gained a record 115 votes in
1986. Vietnam's economic isolation has
also compounded its already staggering
internal problems. Vietnam, its energetic
and literate population notwithstanding,
is now one of the poorest countries in
the world. Access to essential foreign
credits and western expertise will
remain largely unattainable for as long
as Hanoi refuses to seek a negotiated
settlement.

ASEAN has also worked effectively
to increase the international stature of
the noncommunist resistance and to
encourage their expanded efforts within
Cambodia. Vietnam's political-economic
isolation and the ability of the resistance
forces to survive and thrive have
thwarted Hanoi's efforts to make the
Cambodian situation an "irreversible"
one.

Our support for ASEAN is also
premised on the belief that ASEAN's
coordinated response to Cambodia has
helped strengthen ASEAN unity. Our
allies and friends in Southeast Asia are
of vital importance to the United States.
We support their efforts to expand
regional cooperation, and we are encour-
aged by the progress achieved. Our hope
is that the countries of Indochina will at

(lay 1987

EAST ASIA

some time be free to share in the pros-
perity and progress which peace and
cooperation have brought to the
members of ASEAN.

Internal Situation

The last year has brought a number of
developments of immediate or potential
significance to the Cambodian issue.
Inside Cambodia, the noncommunist
resistance forces under the leadership of
Prince Sihanouk and Son Sann continue
their valiant opposition to the Viet-
namese: their aim is a negotiated end to
the PAVN occupation of their country,
not military victory. The fight is still
very much an unequal one: the 140,000
PAVN troops in Cambodia remain domi-
nant, and there is little expectation that
the resistance forces could ever hope to
match them militarily.

Nevertheless, there has been some
encouraging progress. The noncom-
munists successfully withstood the
1984-85 setbacks and have since then
demonstrated a convincing staying
power. Moreover, during the last year,
they have succeeded in marginally
expanding their operations inside the
country and at setting up the beginning
of the vitally necessary logistical and
supply system to sustain operations in
the interior. Most encouraging, noncom-
munist resistance units are reported to
have been well received by the local
population in those parts of Cambodia
where they operate; some villagers have
even given the guerrillas scarce food and
other essentials. Since the noncom-
munists are not connected with either
the Pol Pot atrocities or the Vietnamese
occupation, they can serve as a focal
point for the growing anti- Vietnamese
feelings among the general population
and as a legitimate political entity
responsive to the aspirations of the
Cambodian people.

We continue to believe that the non-
communists must and will play an essen-
tial political role in the achievement of
an acceptable resolution to the Cambo-
dian conflict. The Administration
believes that it is essential for us to con-
tinue actively to support the noncom-
munist resistance. The $5 million
authorization the Administration has
requested represents a key element of
this support. Although the amount of
money involved is modest, it sends a
clear signal about our support for the
noncommunists as an alternative to the
Vietnamese and the Khmer Rouge.

Moreover, since we are responding to a
direct appeal from ASEAN, our support
for noncommunists will help reinforce
the ASEAN lead in the search for peace.

Diplomatic Activity

The last several months have also
witnessed considerable diplomatic activ-
ity related to Cambodia. While it is yet
to be determined whether there is any
change in substance in their position, the
Vietnamese have been particularly active
and have been asserting, through a
number of different channels, that they
desire a resolution to the conflict. They
have repeatedly indicated their desire to
negotiate the Cambodian question with
the Chinese without precondition.

Hanoi has also twice proposed talks
between Prince Sihanouk— as the presi-
dent of the coalition government— and
the Heng Samrin regime; in one case
talks would have included all four Khmer
factions, including the Khmer Rouge.
The Prince rejected these proposals and
suggested instead direct talks between
the Vietnamese and the coalition govern-
ment, with Heng Samrin elements par-
ticipating as part of the Vietnamese
delegation. Sihanouk explained that he
opposed the proposed "all-Khmer" talks
because this would lend credence to
Hanoi's claim that the Cambodia conflict
was a civil war not an international con-
flict sparked by Vietnam's invasion and
occupation of that country.

Others have also been active
diplomatically. The Soviets expressed
their desire to see the conflict resolved,
and Foreign Minister Shevardnadze
reportedly discussed Cambodia during
his recent swing through Southeast
Asia. Although the press reported that
the Soviet diplomat had suggested that
Soviet efforts toward an Afghanistan
"settlement" could serve as a model for
Cambodia, other sources in the region
indicate that he presented no specific
proposals.

The Indians have also suggested that
they would be willing to serve as
mediator or catalyst for resolving the
issue. Minister of State for External
Affairs Singh recently visited Southeast
Asia to convey what was reportedly
Hanoi's desire for a swift settlement.
Again, there have been no indications
that the Indians conveyed any specific
negotiating proposals.

Unfortunately, we see no indication
that the Vietnamese have made any con-
cessions on Cambodia or have demon-
strated a willingness to negotiate

seriously an acceptable settlement.
Nevertheless, Vietnam is feeling the
weight of its Cambodian policy.
Although it is too early to tell, there is
the possibility that the new leadership
might be taking another look at this
problem and might be considering a nev
formulation which would retreat a bit
from its extreme objective of total con-
trol of Cambodia. Such a policy reevalua
tion would be welcomed and could
possibly persuade Vietnam at some time
of the advantages of seeking a real
settlement.

In the meantime, we believe that th<
best policy for the United States is to
continue to maintain our unwavering
opposition to Vietnam's occupation whil
pressing for a settlement which would
address the legitimate interests of the
principal parties involved and prepare
the way for the establishment of a
democratically elected government in
Phnom Penh which reflects the will of
the people.

■The complete transcript of the hearings
will be published by the committee and willb
available from the Superintendent of
Documents, U.S. Government Printing
Office, Washington, D.C. 20402.

FY 1988 Assistance
Requests for East
Asia and the Pacific

by Gaston J. Sigur, Jr.

Statement before the Subcommittee
on Asian and Pacific Affairs of the
House Foreign Affairs Committee on
February 25, 1987. Mr. Sigur is Assist-
ant Secretary for East Asian and Pacifi
Affairs. '

I am pleased to have this opportunity to
present our 1988 foreign assistance pro-
posals for East Asia and the Pacific.

In the 2 years since my predecessor
came before your authorizing committe<
we have witnessed a great deal of
improvement in the region toward
political and social progress by countries
that share our democratic values and
commitment to human rights. With
broad bipartisan support in the Con-
gress, our policies have sought to
encourage these trends.

These policies are based on the belie
that we can, simultaneously, assure our
strategic interests, discourage the influ-

Department of State Bulleti

EAST ASIA

mce of potentially hostile powers, and
irogressively strengthen ties of friend-
ship with the countries in the East Asia
and Pacific region. We are accomplish-
ing these objectives by working with the
friendly governments of the region to
'strengthen their public and private
nstitutions and by assisting them in
advancing toward their economic goals.

The East Asian and Pacific region
-emains an economically dynamic and
culturally diverse area with, generally
speaking, good relations and close ties
;o the United States. Technological
advances are proceeding swiftly, literacy
j-ates are high, and economic perform-
ance on the whole has been impressive,
political instability is the exception
•ather than the rule.

Of course, we do not try to take
■redit for all of the progress in the
•egion. Much of the credit in this large
irea results from the efforts of the
>eople and governments themselves,
lilowever, we can be proud of the role we
iiave played and of our contributions to
, he achievements of this region.

Until the recent past, our role has
i ieen particularly noticeable with respect
I o our crucial economic and military
i .ssistance programs. Now we face the
hird consecutive year of major reduc-
•, ions in our foreign assistance efforts
here. I am concerned that unless our
■ urrent assistance requests are met, we
I- will be jeopardizing our position in East
Isia. The request I am today supporting
«fore you represents, I believe, the
.bsolute minimum effort to which we
.' mist commit ourselves. Doing so is
j lecessary in order to minimize as much
I'.s we can the risks to these vulnerable
', conomies. Should we fail to do so, we
ignal our friends to turn elsewhere for
upport and, by default, aid the Soviet
Jnion in its continuing pursuit of
greater influence in the area.

Speaking for the State Department
tfid as someone who is a student of Asia
*nd who has spent a lifetime in the
egion, I can tell you that, frankly, we
ire playing with fire by continuing to
•educe the foreign assistance budget.
With just two cents of every Federal
mdget dollar going for international
iffairs, the United States is getting a
)retty good bang for the buck. In recent
rears, we have had to pare back con-
siderably in our foreign assistance
Efforts: this year, if we try to find even
iiheaper insurance premiums, we will be
.ruly turning our backs on our regional
Responsibilities.

My colleagues can better inform you
pf details of how past cuts in assistance

affected their agency's effectiveness in
East Asia. In general terms, though, we
can see a disturbing pattern emerge. We
have already cut away the fat and most
of the muscle; further reductions will cut
into the bone.

In an already lean foreign assistance
budget, we are asking to provide deserv-
ing friends and allies in the Asia/Pacific
region with $263 million in economic
assistance next year and $204 million in
security assistance. In total percentages
of worldwide FY 1988 requests, this
represents 3.9% of the economic
assistance and 3.5% of security
assistance— a small price to pay for the
return this country receives in strategic
and economic benefits.

As in the past, our economic
assistance proposals are concentrated
most heavily on three countries. They
are the Philippines, Thailand— both
treaty allies— and Indonesia. We have
again requested the largest amount for
the Philippines. That country continues
to face difficult times economically but,
in large part because of the success of
the recent, plebiscite, promises, with our
continued support and the continued
strong leadership of President Aquino,
to see itself out of these difficult times.

Indonesia, the world's fifth most
populous nation, highly values our
assistance. Although per capita income
has nearly quadrupled over the past
decade, still almost 40% of Indonesia's
population (66 million people) live below
the World Bank's poverty line. With the
collapse of oil prices in 1986 and con-
tinued weak markets for other com-
modity exports, Indonesia is in the midst
of its greatest economic difficulties since
the 1960s. I shall detail additional pro-
grams in just a moment.

With respect to security assistance,
our 1988 proposals are concentrated on
the Phillipines and Thailand. The
Republic of Korea graduated this year
from our program of foreign military
sales (FMS) credits, although an active
international military education and
training (IMET) program continues. This
change was brought about both by the
recognition of Korea's booming economy
and our own budget situation. U.S.-
Korean close coordination on defense
questions, however, continues unabated.
We expect the interoperability demands
on our joint forces will mean that many
weapon systems will continue to come
from American manufacturers.

In the Philippines, where we have
two of our most important military
facilities anywhere on the globe and
where there exists a strong communist
insurgency, nearly all of our military

assistance in FY 1988 will go to fund an
ongoing military assistance program
(MAP). We are asking for $110 million
to fund military training, maintenance,
and equipment acquisition initiatives.
Thailand continues to face a large
Vietnamese force just across its borders
that is trying to subjugate Cambodia and
which poses a significant threat to
Thailand's security. The Thai Govern-
ment plays a key role in frustrating Viet-
namese adventurism. Our support is
crucial not only because of the impor-
tance of Thailand per se, but because of
the stake we have in the independence,
integrity, and prosperity of the nations
of the Association of South East Asian
Nations (ASEAN), of which Thailand is a
member.

Philippines

Our foreign assistance request for the
Philippines addresses the critical needs
of a key allied nation. Under the leader-
ship of President Aquino, the Philippine
Government has instituted sweeping
reforms in an effort to restore
democratic institutions and revitalize a
mismanaged economy. President Reagan
reflected the broad sentiment of the
American people when, during his
meeting with President Aquino last
September, he pledged the United States
to doing all it can to help her build a free
and prosperous Philippines. After Presi-
dent Aquino's eloquent speech to a joint
session, the Congress voted to appro-
priate $200 million in additional
economic assistance. It is in this spirit of
shared purpose that I ask this committee
to consider our aid request for the com-
ing fiscal year.

The basis for our foreign aid pro-
posal for the Philippines is a Presidential
pledge made in connection with the 1983
review of our military bases agreement
with that country. These negotiations
ensured our continued unhampered
access to key military facilities at Clark
Air Force Base and Subic Bay Naval
Base. Subsequent to the successful
review, the President agreed to make his
"best effort" to secure a total of $900
million in security assistance during the
5-year period of FY 1985-89. Thus, the
level of our security assistance directly
relates to our ability to maintain
unhindered use of those military installa-
tions. These facilities play a vital role in
maintaining a regional balance of power,
protecting critical sealanes, and pro-
viding logistical support for U.S. forces
in the Indian Ocean and Persian Gulf.

JVlay 1987

EAST ASIA

Developments since President
Reagan made his "best effort" pledge
have rendered the need for security
assistance greater than ever. During the
last years of the Marcos era, the Philip-
pines experienced an unprecedented
economic decline. Inheriting a collapsing
economy, the Aquino government has
since implemented free market reforms
which have restored economic growth.
Inflation is down, and capital flight has
been arrested. Unfortunately, investor
confidence necessary to trigger sus-
tained economic growth has proved
elusive. Recovery will be slow. It may
well be several years before the living
standards return to levels prevailing at
the time we last negotiated the underly-
ing basis for our security assistance
commitment.

As it struggles to achieve economic
recovery, the Aquino government has
moved ahead with its bold agenda of
political reform. Earlier this month,
Philippine voters voted overwhelmingly
(76%) to adopt a new constitution
establishing democratic institutions of
government similar to those existing
prior to the imposition of martial law in
1972. The landslide vote in favor of the
new constitution, in the fairest and most
orderly election in recent Philippine
history, was a ringing reaffirmation of
President Aquino's political mandate
which will bolster her government and
further encourage efforts to implement
broad structural reforms. No less impor-
tant, the plebiscite's results constitute a
setback for political extremists on both
right and left who had sought to desta-
bilize her government. National legis-
lative and local elections, respectively
slated for May 11 and August 24 of this
year, will complete the transition to full
democratic government.

A virulent communist insurgency
continues to pose a grave threat to the
legally constituted Government of the
Philippines. The government's participa-
tion in peace talks initiated during the
60-day cease-fire is evidence of its appre-
ciation for the need to redress socio-
economic grievances contributing to the
insurgency's appeal. The New People's
Army, now estimated at more than
23,000 armed guerrillas, returned to the
field earlier this month after communist
negotiators spurned government
attempts to extend a cease-fire
negotiated late last year. In light of
these developments, the Aquino govern-
ment has resumed military operations
against those seeking to undermine law
and order and subvert the democratic
process.

Our proposed security assistance
package for FY 1988 is designed to
fulfill the President's "best effort" com-
mitment to the Philippines. Together
with our development assistance and
food aid, it also aims to address a wide
range of problems whose solution is
essential to the success of President
Aquino's administration. We are asking
for $260 million in new aid to the Philip-
pines. This request is made up of $148
million in economic aid and $112 million
in military assistance.

Economic support funds totaling
$124 million constitute the largest single
component of our proposal. These funds
will allow us to assist the Government of
the Philippines in implementation of its
strategy for economic growth and devel-
opment in an environment of scarce
budget resources. We are working
closely with the Government of the
Philippines to find the best ways in
which this category of funding can be
used to complement its comprehensive
economic development strategy. We are,
for example, supporting the Government
of the Philippines with its structural
reform agenda which includes trade
liberalization, privatization, divestiture
of nonperforming government owned
corporations, and tax reforms. Economic
support funds also contribute to improv-
ing economic and social conditions in the
vicinity of U.S. military facilities by pro-
viding schools, roads, community
markets, and other needed
infrastructure.

Development assistance in the
amount of $13 million focuses on pro-
grams designed to spur agricultural
development in rural areas. Further, we
are promoting better health care pro-
grams. We are also seeking just over $11
million under provisions of PL 480, Title
II to fund maternal and infant health
programs and school feeding activities
among Filipinos most in need.

Nearly all of our request for military
assistance this fiscal year will go to fund
an ongoing military assistance program.
That program, for which we are asking
$110 million, is designed to provide
military training, maintenance, and
equipment acquisition initiatives.
Medical support of troops in the field is
also a high priority. Finally, we have
asked Congress to appropriate $2.6
million for advanced professional train-
ing of junior, mid-level, and noncommis-
sioned Philippine military officers.

This month marks the first anniver-
sary of historic events culminating in the
inauguration of President Aquino. Her

government has since presided over a
rebirth of Philippine democracy and
taken important first steps toward
revitalizing a stagnant economy. When
she visited Washington in September
1986, President Aquino asked our
assistance in helping her bring peace and
prosperity to the Philippine people. Our
foreign assistance request for the next
fiscal year reflects our commitment to
helping her realize that goal while, at the
same time, serving our own national
interest in a strong, stable, prosperous
Phillipines.

Thailand

Thailand is both a longstanding friend
and important treaty ally. Our relation-
ship is based on a shared commitment to
freedom and democracy, mutual security
cooperation in a wide range of areas,
and growing trade links. Thailand plays
a key role in resisting Vietnamese
aggression, particularly in preventing
the consolidation of Vietnam's occupa-
tion of Cambodia. It has been generous
in providing refuge to Indochinese flee-
ing communist oppression in their own
countries. And Thai authorities have
worked closely with us in suppressing
narcotics trafficking from the Golden
Triangle.

Our proposals for assistance to
Thailand's economic development and
military modernization programs are an
integral part of our efforts to advance
those interests which we share with the
Thai and other regional friends. Our
assistance is viewed by friend and foe
alike as a gauge of the depth of our com-
mitment to Thailand, to the success of
ASEAN of which Thailand is a member,
and to continuing as a major force for
stability and development in the region.

The 1978 Vietnamese invasion and
occupation of Cambodia brought a large,
experienced Vietnamese military force
to Thailand's border. Vietnamese incur-
sions into Thai territory occur regularly,
while Vietnamese artillery fire has
inflicted suffering on civilian popula-
tions, both Thai and Khmer displaced
persons alike. In response to Vietnamese
aggression, Thailand instituted a modest
program to modernize its armed forces.
Together with other measures, such as
the agreement for a war reserve stock-
pile, our support for the Thai moderniza-
tion program is intended to deter further
Vietnamese aggression by helping Thai-
land to become more self-reliant and to
assume a greater role in meeting our
shared security goals.

Department of State Bulletin

EAST ASIA

Our assistance package also makes
Important contributions to Thai eco-
lomic development. The Thai economy is
|ust emerging from a painful period of
idjustment made necessary by growing
budget and trade deficits in the early
}L980s. Recently revised figures indicate
hat the 1985-86 Thai economic slow-
down was more severe than originally
ihought. While conservative economic
management, the drop in oil prices, and
ower world interest rates lead most
bbservers to anticipate a return to more
acceptable growth levels, the health of
he Thai economy remains dependent on
•xternal factors. U.S. security aid is
essential to the Thai Government by
idping it make the necessary military
(•xpenditures to meet the threat of Viet-
namese aggression while allowing it to
l;ive social and economic development a
dgh priority. Our economic assistance
irogram, though limited in resources,
lemains targeted toward sensitive areas
iuch as the eradication of rural poverty
1 /hich fueled the communist insurgency
f the 1960s and 1970s.

For FY 1988, we are requesting $50
lillion in MAP and $10 million in FMS
redits. This is substantially less than we
equested in FY 1986 and FY 1987. By
laking most security assistance MAP
ather than FMS, we hope to ease the
train falling levels of U.S. assistance
I lace on the Thai economy. Nonetheless,
/e expect this amount to be insufficient
o halt a trend already underway toward
reater Thai reliance on other countries
o sustain their military modernization
rogram.

I would like to add that our economic
ssistance and security assistance carry
enefits beyond those immediately
pparent in military modernization. For
xample, one of the consequences of the
arsh policies pursued by the communist
.overnments of Indochina has been a
I irge, continuous outpouring of people
eeking refuge from oppression. For
'hailand and the other ASEAN states,
' hese refugees present not only humani-
arian but security and economic issues
.s well. Although the international com-
nunity provides much needed financial
upport for over 300,000 refugees and
lisplaced persons on Thai territory,
issuring the safety of those who have
■eceived first asylum places additional
jequirements on the Thai Armed Forces.
.Similarly, the Thai Armed Forces play
jin essential role in our joint effort to
.'.uppress narcotics trafficking through
he Golden Triangle.

Our request for $5 million in
economic support funds (ESF), which
have been straight-lined for several

years, provides the Thai with assistance
in helping village communities along the
Cambodian border. Vietnamese incur-
sions and shelling have inflicted
casualties and disrupted the economic
and social stability of rural populations,
making these people deserving of special
help and compassion. These funds also
ease the impact of refugee influx on Thai
border villages, thus contributing to the
ability of the government to sustain
Thailand's humane first asylum policies.

Our IMET request in FY 1988
amounts to $2.2 million. Beyond the
technical challenges attendant on the
introduction of sophisticated systems,
the need for advanced logistical training
and management becomes pressing. The
performance of Thai personnel in our
courses has been very impressive. Fur-
ther, the United States accrues indirect
benefits from the exposure to our society
of these future leaders who participate
in our training programs.

Burma

Although Burma follows a genuinely
nonaligned foreign policy, relations
between the United States and Burma
continue to improve. Much of this is
based on the increased cooperation
between our governments in antinar-
cotics activities in recent years, which
has opened the door to greater contacts
in other areas of interest to the United
States.

Our principal objectives in Burma
are to encourage the country's economic
development and evolution into a polit-
ically stable society friendly to the West
and to assist the Burmese Government
to suppress the flow of illicit opium and
opium derivatives from Burma to inter-
national markets.

Despite substantial natural
resources, Burma ranks among the
world's poorest countries. It has a per
capita income of less than $190 and a
debt service ratio of over 60% on a
foreign debt of $2.6 billion. Low com-
modity prices have hurt Burma's export
earnings, which have been dropping for
several years. Burma recently applied to
the United Nations to be included on the
list of "least developed developing
nations." A favorable decision is
expected by this summer.

The $8 million in development assist-
ance proposed for FY 1988 represents a
cut of almost half from the FY 1985
level of $15 million. Agency for Inter-
national Development (AID) projects are
tightly focused to assist Burmese agri-
cultural development, improve rural
health care, and expand technical train-

ing in a variety of fields. The AID proj-
ects have been well-received by the
leadership and people of Burma and
have contributed measurably to a
strengthening of our bilateral relations.

The Burmese Government is fighting
a number of insurgent and warlord
groups, including the Burma Communist
Party, that control large areas of the
hinterland and finance themselves
primarily through narcotics trafficking.
The Burmese Government launched,
with U.S. support, an aerial opium
eradication campaign in 1985-86 and
again in 1986-87. The latest operation,
after spraying some 22,000 acres, was
suspended short of the goal of 45,000
acres because support troops were
diverted to counter a major Burma Com-
munist Party offensive. The government
plans an expanded spray program in
1987-88 in areas taken from the Burma
Communist Party.

The $260,000 proposed for IMET in
FY 1988 will allow the Burmese Govern-
ment to increase its own training of
military officers. As with the other
IMET programs, training in the United
States will directly expose Burmese
officers to American society and values
and the role of the military in a
democratic society. Because of the
military's dominant role in Burma, this
could have a favorable long-term effect
on our bilateral relations.

Indonesia

Indonesia lies along vital air and sealines
of communication between the Pacific
and Indian Oceans. Direct U.S. invest-
ments and valuable raw materials
(especially oil and natural gas) further
increase Indonesia's importance.
Indonesia has compiled a record of
political stability and sound economic
management over the past two decades
and has played a constructive role in
international affairs as a moderate voice
in the Nonaligned Movement, ASEAN,
the Organization of Petroleum Export-
ing Countries (OPEC), and the Organiza-
tion of Islamic Conference. Within
ASEAN, Indonesia has taken a leading
role in the effort to end Vietnam's occu-
pation of Cambodia.

Indonesia's economy depends heavily
on oil and gas sales. Petroleum earnings
during 1986 were down by half, precip-
itating the worst economic downturn in
two decades. External debt stands at
nearly $40 billion, with a debt service
ratio near 40%. The government has
announced an austere FY 1987-88
budget 6% below the previous budget in
real terms. During 1986 the government

!^ay 1987

EAST ASIA

continued its pattern of prudent macro-
economic management and important
trade and industrial policy reforms. With
annual per capita income under $500 and
2 million new labor force entrants
annually, bilateral and multilateral
foreign assistance continue to make an
important contribution to political and
economic stability.

Our economic cooperation program
with Indonesia consists of development
assistance, food aid (wheat) under
PL 480, Title I and PL 480, Title II. It
focuses on three goals: expanding off-
farm employment, increasing and diver-
sifying food production, and improving
primary health care and family planning.
Two key elements in achieving these
objectives are developing human
resources and building institutions that
can adapt and spread technologies to
accelerate development. Our economic
cooperation program also encourages
government decentralization and private
sector involvement in technological
diffusion.

We have allocated $45 million in
development assistance for FY 1988,
which is equal to FY 1987 but $15
million less than our FY 1986 request.
The majority of these funds will support
traditional and ongoing economic
development programs in Indonesia. As
in FY 1987, a portion will be applied to
new areas with the aim of encouraging
further trade and economic deregulation.
Although our $10 million request for
PL 480, Title I, aid is only one-third of
the FY 1987 program, we know the
Government of Indonesia continues to
give high priority to this program which
helps maintain adequate stocks of a good
grain not produced, but increasingly con-
sumed, in Indonesia. Our $4.4 million
request for PL 480, Title II funds in FY
1988 will support important voluntary
agency programs.

The security assistance program for
FY 1988 consists of $2 million for IMET
and $20 million in FMS credits at con-
cessional rates. The FMS figure is
roughly equal to the FMS assistance pro-
vided in FY 1986. We provided half this
FMS amount in MAP in FY 1987. FMS
credits at concessional rates are
extremely beneficial to Indonesia as it
seeks to recover from a severe economic
downturn and budget shortfalls brought
on by a sharp decline in oil earnings in
1986. The Indonesian military has taken
a disproportionate cut in already austere
budgets. Our providing FMS credits at
concessional rates in FY 1988 will per-
mit further progress toward purchase of
systems, such as the F-16 A/B, to which
the Indonesian military accords high
priority.

Our security assistance has helped to
sustain a number of important pro-
grams, including aircraft maintenance
and spare parts, ship overhaul and spare
parts, improvements in air and sea
defense systems, and— through IMET—
advanced and specialized training for
commanders and management personnel
in the armed forces. Indonesia's military
remains critically short of qualified
technicians and program managers.
U.S. training primarily will be in
technical fields, and the level of IMET
funding requested will permit up to 250
military officers to participate in our
training programs in FY 1988. IMET
deserves high priority support because
of the important role played by the pro-
fessional military in Indonesian society,
the utility of the program in furthering
our foreign relations objectives, and the
desirability of improving mutually
beneficial service-to-service interaction.

Malaysia

Strategically located on the Malacca
Strait, Malaysia's continued political
stability and economic development are
important to U.S. interests in Southeast
Asia. Confronted with the Vietnamese
occupation in Cambodia and a major
Soviet base at Cam Rahn Bay, Malaysia
has been near the forefront of ASEAN's
strategy to compel a withdrawal of Viet-
namese forces from Cambodia and a
negotiated settlement ensuring the
rights of the Cambodian people.
Malaysia is an active and responsible
member of ASEAN, the Islamic Con-
ference, and the Nonaligned Movement.

U.S. -Malaysian relations, based on a
broad band of common interests, are
excellent. After Prime Minister
Mahathir visited Washington in early
1984, bilateral relations were broadened
considerably. Subsequent exchanges of
high-level visits, including a visit by Mrs.
Reagan in 1986, have further enhanced
our ties. Malaysia is interested in con-
tinued defense cooperation with the
United States, so long as the relation-
ship is kept consistent with Malaysia's
nonaligned status.

For the past several years the
Government of Malaysia has considered
IMET to be the most important element
in our small security assistance program
for Malaysia. Now faced with its first
economic recession and consequent
reductions in the defense budget, the
Malaysian Government is looking for
ways to maximize the armed forces'
ability to utilize current equipment and
manpower. The $1 million IMET pro-
gram we are requesting in FY 1988 will

provide an extremely useful means for
the Malaysian Armed Forces to meet
their training needs as they adjust to a
more conventional force structure and
more sophisticated equipment. The
Malaysian Government considers
exposure to U.S. defense management,
operational doctrine, and support con-
cepts critically important to the rapid
modernization of armed forces increas-
ingly designed to protect Malaysian anc
ASEAN interests in the South China
Sea. In the foreseeable future, the
Malaysian Armed Forces are expected j
look to us to fulfill as many of their
external training needs as we find
possible.

The $4 million FMS request level fc
Malaysia in FY 1988 is designed to
restore continuity to the program as th>
Malaysian Armed Forces adjust to theii
new missions. Although Malaysia has
preferred to utilize FMS credits to
acquire spare parts for U.S. -origin equi
ment, additional purchases are likely
when the Malaysian economy recovers.

Singapore

Singapore plays an important role
within ASEAN and occupies a pivotal
geographic position at the juncture of
the Pacific and Indian Oceans. Singapoi
is a valuable port-of-call for U.S. ships
and aircraft and offers important
maintenance and support facilities. A
nonaligned nation, Singapore plays a
moderating role within the Nonaligned
Movement and in United Nations fora.
Singapore has been steadfast in its
opposition to Soviet actions in South an
Southeast Asia, and Singapore's leader:
have publicly called for the United
States to maintain a continuing regiona
security presence as a deterrent to
Soviet expansionism. Additionally,
Singapore has strongly supported
ASEAN's strategy for achieving a
political settlement of the Cambodian
problem and an end to Vietnamese occu
pation of that country.

For FY 1988, we are requesting an
IMET program of $50,000. This modest
amount of assistance serves to demon-
strate our continuing interest in
Singapore's security and independence.
It supports the continued development
of Singapore's small but highly profi-
cient armed forces and their ability to
protect the international sea and
airlanes through the Strait of Malacca.
The United States is an increasingly
important source of military training ani
expertise for Singapore, as well as a sup
plier of military equipment.

'am

EAST ASIA

ambodia

for more than 8 years, Vietnam has
ised its massive military might to sub-
Jugate Cambodia and turn it into a
/assal state. The People's Army of Viet-
Jiam continues to deploy about 140,000
Occupation troops inside the country.
Vietnamese military and civilian advisers
; .re pervasive and are involved in all
ispects of the government and economy,
"he Heng Samrin regime, which Hanoi
istalled after routing the Khmer Rouge
rom Phnom Penh, remains dependent
n the Vietnamese presence.

The occupation of Cambodia by Viet-
am represents a clear and immediate
inreat to the security of Thailand and to
LSEAN stability. The presence of Viet-
amese combat troops on its borders has
bliged Thailand to assume the onerous
iisk of expanding its own military
resence on the border. The exodus of
;veral hundred thousand Cambodians to
le border region, most of whom con-
i nue to live there under the protection
If the United Nations, has further
v.rained Thai resources. Thailand has
jsponded to the challenge, however,
Kad has successfully countered Viet-
amese cross-border incursions while
icilitating UN relief efforts. ASEAN
l is also responded effectively to the
il ietnamese challenge. It has led the

rowing international opposition to the
) pupation of Cambodia and has put
!eth into the diplomatic isolation of
lietnam. ASEAN has also provided
plomatic and other support to help
lild up the international stature and
ipabilities of the Cambodian noncom-
unist resistance as part of a unified
Dlicy to secure a negotiated settlement.

The noncommunists represent the
ily alternative to Vietnamese occupa-
on or the return of the brutal Khmer
ouge. We have been encouraged
;cently by their progress in expanding
leir political and military presence
iside Cambodia. They have compen-
ited for the loss of border camps in
}85 by deploying smaller more mobile
>rces deeper in Cambodia, where they
•e building logistical bases to support
<panded operations in the future. The
lysical presence of the noncommunists
iside Cambodia can demonstrate to the
ambodian people that they do not have
) choose solely between the communist
eng Samrin regime or the communist
limer Rouge.

The prime goals of U.S. assistance to
le Cambodian noncommunist resistance
Drees are to respond to ASEAN's
lebruary 1985 appeal for international
apport for the noncommunist resist-

ance; to demonstrate tangible U.S. sup-
port for the ASEAN strategy on Cam-
bodia; to improve the positioning and
strength of the noncommunists vis-a-vis
the Khmer Rouge and help provide a
counterweight to the Khmer Rouge
within the coalition government of
Democratic Kampuchea; and to
strengthen the actual effectiveness of
the resistance forces themselves.
Although our assistance program is not
large, it is an important demonstration
of our commitment and represents a
direct, tangible response to ASEAN's
request for the international community
to aid the Cambodian people in their
political and military struggle.

The $5 million in ESF funds author-
ized for the assistance program will pro-
vide funds for nonlethal activities in sup-
port of the noncommunist resistance.
These activities will contribute directly
to strengthening the effectiveness of the
noncommunist resistance forces.

Pacific Islands

One of our principal foreign policy goals
in the South Pacific is strategic in nature
and relates to the long-held bipartisan
determination that the region should not
fall under the influence of any power
that might be hostile to the United
States. Another major focus of U.S.
interest in the region is to participate in
the growth of the South Pacific's
regional economies and democratic
development. In the view of this Admin-
istration, the surest way to achieve these
goals is to work with the governments of
the region to strengthen their public and
private institutions and to assist them in
promoting economic growth.

When considering our relationship
with the South Pacific, it is useful to
keep in mind an unusual characteristic of
the region, that is, an area made up of
almost exclusively democratic, pro free
enterprise governments that regularly
seek a renewal of their mandate from
the people. The Administration of Presi-
dent Reagan is committed to assisting
the independent nations of the South
Pacific maintain the institutions that
have produced this environment of
freedom. In the past year, it has taken
two major steps to underscore the
seriousness of that commitment and our
desire to work with the region to find
solutions to problems.

Regional Fisheries Treaty. Last
October one of your former colleagues
and now Under Secretary of State, Ed
Derwinski, represented the Secretary
at the final negotiating session for a
regional fisheries treaty between the

United States and the 16 member
nations of the Forum Fisheries Agency.
This treaty, which we expect to be
signed within the next few months, will
remove from our relationship with the
region a contentious and politically
volatile issue produced by differing
views on coastal state jurisdiction over
highly migratory species of tuna. Our
differences with the region over this
issue were exploited by our global adver-
saries. In this sense, the treaty is a
vehicle for addressing national security
concerns as well as our economic rela-
tionships in the area. While the purpose
of the treaty is to address and resolve a
serious dispute between the United
States and the nations of the region and
the $10 million ESF assistance package
associated with it, it will also serve the
purpose of assisting them to develop an
indigenous fishing industry and more
vigorous local economies.

The successful conclusion of the
fisheries negotiations in October was
followed 1 month later by our signing of
the Convention for the Protection of the
Natural Resources and Environment of
the South Pacific Region and associated
protocols. Under this convention, the
United States agrees not to pollute the
marine environment, to cooperate in
environmental protection, to prepare
environmental impact assessments for
major projects, and to share information
with the other convention parties. The
convention contains a specific prohibition
on sea disposal of radioactive wastes in
the convention area and a provision for
the prevention of pollution from nuclear
testing. The convention represented a
major policy initiative by the states of
the region that we were pleased to
support.

Nuclear Free Zone Treaty. Of

course, we have not been able to respond
positively to every regional initiative.
Earlier this month, for instance, we
informed the region's governments that
in view of our global security interests
and responsibilities, the United States
was not, under current circumstances, in
a position to sign the three protocols to
the South Pacific Nuclear Free Zone
Treaty. At the time we noted that our
practices and activities in the region are
not inconsistent with the treaty or its
protocols. We appreciate the region's
commitment to nonproliferation repre-
sented by the Rarotonga treaty, as we
do the efforts by members of the South
Pacific Forum to insure that the treaty
took into account our regional security
responsibilities. As you know, the United
States has signed nuclear-free-zone

: 1ay 1987

ECONOMICS

treaties and protocols in the past as part
of our constant search for ways to
enhance nonproliferation. Accordingly,
we did not ignore or discount the
interests of the South Pacific Forum in
enhancing the region's security. Indeed,
we gave the views of our friends in the
region the most careful attention. In the
end, however, we could not in good con-
science isolate the South Pacific from its
broader strategic relationships.

In examining the treaty protocols,
we were concerned above all that we not
in any way undermine the policy of
deterrence that has been the cornerstone
of Western security since World War II.
We concluded that the growing number
of proposals for nuclear-free-zones has
the potential to undermine that policy.
We could not ignore the fact that were
we to sign the treaty of Rarotonga pro-
tocols, our adherence would be used by
others to support the creation of nuclear-
free-zones elsewhere, a situation which
could be exploited by our adversaries.
The proliferation of these zones in the
free world, unmatched by disarmament
in the Soviet bloc, would clearly be
detrimental to Western security. While
our friends in the region have expressed
disappointment with our decision, we are
confident that the fundamental strength
of our relations with the South Pacific
will ensure that the region will
understand.

Assistance Request. For FY 1988,
and reflecting the Administration's
desire to work with the Congress and
bring the budget under tight control, we
are seeking only $4 million in develop-
ment assistance, the minimum level con-
sistent with our foreign policy goals in
the region. This money will be channeled
into programs and projects designed to
strengthen the region's private sector,
promote the development of rural agri-
culture, and improve public health. In
addition, we will seek congressional
approval for $13.2 million in ESF to
fund a modest bilateral assistance pro-
gram in Fiji, help develop the region's
ability to analyze available data on
off-shore mineral and hydrocarbon
resources, and develop the region's
fisheries. The latter component of the
ESF request has two distinct elements-
Si. 5 million to support our ongoing
regional fisheries development program
and $10 million to fund the assistance
package developed in conjunction with
the regional fisheries treaty for treaty
signatories.

Finally, the Administration will seek
your support for a modest $230,000
military training, or IMET, program for

the region and $300,000 in MAP to com-
plete the small-arms replacement pro-
gram for the Royal Fiji Military Force,
which maintains 1,000 men in the UN
Interim Force in Lebanon (UNIFIL) and
the Sinai Multilateral Force and
Observers (MFO).

Marshall Islands, Federated States
of Micronesia, and the Trust Territory
of the Pacific Islands. Elsewhere in the

Pacific, under PL 99-239-the compact
legislation for the Marshall Islands and
the Federated States of Micronesia—
U.S. economic assistance to the freely
associated states will be provided
through the Interior Department budget.
Therefore, the Department of State
budget proposal contains no request for
compact funding, and this funding is
lodged in the Interior Department
proposal.

I wish to point out, however, that
under the same public law, the Depart-
ment of State will be responsible for the
conduct of our relations with those
states. The President, on October 16,
1986, issued Executive Order No. 12569
and directed the establishment of an
Office of Freely Associated State Affairs
within the Department of State to carry
out these responsibilities. The new office
has now been established in the East
Asian and Pacific Affairs Bureau of the
State Department.

Acting pursuant to these statutes an
executive instruments, the United State
and the freely associated states have
gotten off to a good start on implement-
ing the Compact of Free Association.
We are establishing our representative
posts in Kolonia, Pohnpei, and Majuro,
Marshall Islands, and the two freely
associated states have established
official representation in Washington.
Both freely associated states are
expected to become members of the
South Pacific Forum this summer, and
their new political status has been
formally recognized by a number of the
regional states, including Australia, Ne\
Zealand, Japan, Fiji, and Western
Samoa.

Palau has not yet approved the Con-
pact of Free Association in accordance
with its internal constitutional require-
ment of a 75% majority and thus
remains under the trusteeship agree-
ment. We will continue to discuss the
political status issues with Palau as thej
relate to implementation of the approve
compact but are not in a position to
renegotiate its terms. Trusteeship-level
funding for Palau will continue to be pr<
vided under the Interior Department
budget.

'The complete transcript of the hearings
will be published by the committee and willb
available from the Superintendent of
Documents, U.S. Government Printing
Office, Washington, D.C. 20402. ■

Structural Adjustment, Dialogue,
and U.S. -Japan Economic Relations

by W. Allen Wallis

Address before the annual Executive
Committee meeting of the U.S. -Japan
Business Council in Kona. Hawaii, on
February 16, 1987. Mr. Wallis is Under
Secretary for Economic and Agricultural
Affairs.

I do not have to tell you that the U.S.-
Japan economic relationship is, today,
the most dynamic— and controversial—
economic relationship in the world. You
recognize better than anyone how wide-
ranging, complex, and multifaceted it
has become.

Just look at the statistics. As a
statistician, I know that figures alone do
not begin to tell the whole story. But
they are, indeed, impressive. Together,
the United States and Japan account for

60% of OECD [Organization for Eco-
nomic Cooperation and Development]
production; two-way trade now exceeds
$110 billion annually; total direct invest-
ment in each other's economies has
reached some $25 billion and is growing
dramatically. The United States and
Japan together provide 75% of all new
internationally syndicated bank lending
and 45% of all economic assistance to
developing countries.

You, your companies, and the
universe of companies that you repre-
sent are the ones who are largely
responsible for making all this happen.
You are the pioneers and explorers who
have committed time, resources, and
talent to the Japanese and American
markets, risking the health of your
balance sheets on these two economies.

Department of State Bulletin

ECONOMICS

The Importance of
Structural Adjustment

h am pleased you have asked me to speak
!on structural adjustment as an element
of U.S. -Japan economic relations. You,
(better than anyone, understand the con-
stancy of change. New economic condi-
tions develop, exchange rates shift, new
technologies come on stream, new prod-
ucts enter the marketplace, and the less
innovative, less productive, and less effi-
cient producers fall by the wayside. As
iDainful as this process of adjustment
may be to individual companies, overall
It strengthens our economies and helps
;hem reach higher levels of growth by
promoting the more efficient and more
productive.

This assumes, of course, that govern-
nent policies and programs, as well as
private attitudes and practices, allow the
adjustment process to go forward. In our
narket systems, adjustment is, and must
|'>e, a natural part of economic life. The
j economy does not change fundamentally
i it any one moment; if there are no bar-
; iers to adjustment, it reacts and adjusts
ontinuously.

The decade of the 1970s gave us all a
ometimes harsh lesson in the impor-
ance of adjustment. The sharp breaks
rith the past— on exchange rates,
nergy, food and raw material prices,
,nd inflation, just to name a few— called
or major adjustments in our economies,
iadly, we found that the flexibility
seeded for adjustment was not always
here. This was especially true in
Europe, where government policies have
"npeded the natural processes of adjust-
lent.

The United States and Japan by the
arly 1980s had adjusted reasonably well
o the dislocations of the 1970s. But new
igns of international imbalance began to
ppear. The United States experienced a
eriod of strong growth and even
tronger expressions of confidence in the
J.S. economy. Our currency appreciated
apidly, beyond anything explainable by
elative inflation or by trade in goods
nd services.

Favorable investment opportunities
i the United States, combined with low
ational saving and with a poor invest-
lent climate in most of the rest of the
/orld, generated a large surplus on our
apital account. We were the recipients
f a sizable net inflow of the world's sav-
ng. This capital inflow led us to be also
he recipients of a sizable net inflow of
he world's goods. The U.S. trade and
urrent account deficits reached record
iiroportions, month after month.

Across the Pacific, Japan was
experiencing a similar phenomenon in
reverse. Strong domestic saving and
sluggish investment, both public and
private, led to a deficit on capital
account. The Japanese sought
remunerative investment opportunities
abroad and found them in the United
States. But the other side of the coin
was that Japan's trade and current
account position moved to record
surpluses, both with the world as a
whole and especially with the United
States.

International imbalances are not
inherently bad, at least in economic
terms. Whether they are detrimental to
our two economies, or to the global
economy, depends largely on the effi-
ciency with which each economy
operates. It can be detrimental if saving
or consumption is artificially encouraged
or discouraged by governmental action,
if investment decisions are directed or
distorted by public policy, or if the public
sector is simply too overbearing, either
through regulation or sheer weight. In
these circumstances, the international
imbalances will reflect policy-induced
domestic imbalances and inefficiencies.
Policies that inhibit adjustment to
change interfere not only in the domestic
economy but also in the global economic
relationship among countries.

This is why the issue of structural
adjustment has become one of the major
items on the international economic
agenda and why it has received attention
at economic summit meetings, most
recently at the Bonn and Tokyo sum-
mits. On the basis of the consensus
reached at the summits, economic
officials of the major industrialized coun-
tries outlined in the "Plaza agreement"
appropriate domestic structural
measures, such as reducing rigidities in
labor and capital markets, to provide a
sound basis for more balanced, noninfla-
tionary economic growth.

The OECD is nearing the end of an
ambitious work program on structural
adjustment, including agriculture. The
OECD's analysis and recommendations
will be examined this May by OECD
government ministers and will provide
guidance for the hard political decisions
that governments must make.

The United States has approached
its own structural reform with four prin-
cipal economic priorities:

• Deregulating our domestic
economy;

• Curtailing the growth of govern-
ment expenditures;

• Reforming our tax system; and

• Opening the international market,
in part by resisting protectionism at
home and championing a new round of
trade negotiations internationally.

We have not done badly. Tax reform
is a reality. Far-reaching steps have
been taken in deregulation. A new trade
round has been launched, and we are
aggressively tackling the most intracta-
ble problem— excessive government
expenditure— which is the root of our
excessive public sector deficits. We are
making progress even on this front, and
our Federal deficits are on a downtrend.
All told, this is not a bad record— in fact,
comparison with any other country
makes it look miraculously good.

The Political Dimension

Whether there is an economic problem
or not, we must face the fact that large
imbalances, especially trade deficits, lead
inevitably to political problems. And we
do have a serious political problem.
Despite 4 years of uninterrupted growth
in the United States, the lowest inflation
in over two decades, dramatically lower
interest rates, real prices of energy
below those of the early 1970s, more
employment than ever— despite this
record, the political process in the
United States is virtually overwhelmed
by sentiments in favor of protection. The
process of adjustment is inexorable but
is not without discomfort. That discom-
fort translates into strong political
forces.

As Americans look around for
reasons for the trade deficit, for an
explanation for our declining
industries— it seems only natural to
many of them to focus on a country with
the opposite trade position. Japan's
large global surplus and the massive
bilateral surplus with the United States
are like bright neon lights attracting
attention as we search for causes of our
deficit.

The United States and Japan are
addressing the specific trade problems
between our two countries in a number
of forums. But both partners know that
opening markets will not wipe out the
massive imbalances that are the source
of our political friction. Estimates are
that totally free and uninhibited trade
between the United States and Japan
would shift the bilateral balance in the
U.S. favor by no more than $5-$10
billion, compared to the 1986 deficit of
$60 billion. We both know that, funda-
mentally, trade positions are manifesta-
tions of other influences governing sav-
ings, investment, and international

-day 1987

ECONOMICS

capital flows. If we do not work to iden-
tify ways to reduce the domestic imbal-
ances among these influences and to
make our economies more efficient, then
the political woes will persist, even
beyond our best efforts to open markets
and liberalize trade.

Opening Markets in Japan

During the last 4 or 5 years, we have
witnessed a sea change in Japanese atti-
tudes regarding trade, the opening of
markets, and the Japanese economy.
During this period, much effort by the
Japanese Government and private sector
has focused on liberalizing Japan's
capital, financial, goods, and services
markets and opening them to foreign
products and competition. The process
has now been extended to whole sectors
via the MOSS [market-oriented, sector-
selective] negotiations. Since its trade
action plan of 1985, the guiding principle
of Prime Minister Nakasone's govern-
ment has been that Japan's markets
should be free in principle, with restric-
tions only as exceptions.

This is not to say that the market
opening process has been completed.
There is much more to be done, and
many announced policies and programs
still need to be fully implemented. To
address this, U.S. trade policy toward
Japan will continue to be comprehensive
in its scope. Our policy's main elements
are that:

• We will continue to seek the
removal of individual trade barriers
which affect a wide variety of American
goods and services.

• We will continue to seek open and
liberalized markets for entire industrial
sectors through the so-called MOSS
process and encourage further liberaliza-
tion of Japan's financial and capital
markets.

• We will continue to deal with the
fundamental issues that lie behind our
trade balance by encouraging better
balance between internal saving and
investment in both economies and by
reducing our fiscal deficit.

• As necessary, we will take
unilateral action under our own trade
laws to remove unfair trade practices.

• We will continue to cooperate with
Japan internationally to strengthen the
world trading system and promote the
success of the new trade round.

Japan's Maturing Economy

Japan's economy is maturing. By such
standards as per capita income and GNP

[gross national product], it has achieved
parity with— or surpassed— the other
major industrialized countries. This was
achieved, in part, by Japan's very effi-
cient export sector, which has been able
to adjust and transform itself by
responding to emerging opportunities in
international markets. Thus, Japan
moved from labor-intensive, low-wage
industries in the 1960s to today's
knowledge-intensive, high-technology
fields such as computers, semiconduc-
tors, and telecommunications.

However, Japan has also tried to
hold on to those sectors where its com-
parative advantage now is waning, such
as steel, aluminum, shipbuilding,
petrochemicals, textiles, and some con-
sumer electronics. This has been at great
cost to Japan's economy and to the
economies of Japan's trading partners
and competitors.

Internal Inefficiencies
in the Japanese Economy

Japan's success in its export sector has
created the appearance of a miraculously
efficient economy. Notwithstanding that
popular image, however, much of the
Japanese economy is astonishingly
backward and inefficient. It is ironic that
Japan, which in its foreign trade has
been so effective in directing its
resources and talents into the most pro-
ductive areas, has not allowed the same
kind of efficiencies to operate in its
domestic sector. A few examples:

Agriculture. America's farmers are
five times as productive as Japan's and
could provide food to Japanese con-
sumers at a much lower cost. Yet they
are prevented from doing so, in many
cases, because of quotas and high tariffs.
Many of the products that we are inter-
ested in selling— for example, wine, beef,
citrus, and fruit juices— are marginal to
the Japanese diet, and the economic
impact on Japan's farmers of a more
open market for these products would
not be great. Rice is the staple of the
Japanese table, especially at the lower
income levels, yet it sells there for about
seven times the world price. Soybeans
also sell for about seven times the world
price. Because an inefficient sector is
protected, the Japanese consumer and
the Japanese economy as a whole pay
the price.

Forestry and Paper Products.

Japan has no problem buying logs from
us— in fact, they go in duty free— but if
our sawmills, which are much more effi-
cient than Japan's, cut those logs and
process them into plywood or paper,

Japan levies a high tariff on them. The
result? Japanese houses and furniture
are more expensive than they need to
be. Every time anyone in Japan puts pen
to paper or remodels his house, he is
being forced to subsidize an inefficient
industry. A lumberman told me that he
has seen many mills in Japan that are
more primitive than any that have
operated in this country in this century.

Retailing and Distribution. Japan's
cumbersome distribution system raises
the price of goods, especially imported
goods, and also restricts their availabil-
ity. Even with the enormous fall in the
dollar, we do not see the lower yen cost
of foreign goods being fully passed on to
Japanese consumers. Japan's retailing
law limits the size of stores, so even
though a larger retailer could provide a
greater variety of goods at a lower price
he can be prevented from doing so.
Thus, there is underinvestment in large
retail outlets.

Depressed Industries. When indus-
tries in Japan become depressed, Japan
moves to subsidize them by providing
specific tax benefits and loan
guarantees; it also protects a number of
them by organizing cartels and barring
lower priced imports. Industrial users,
therefore, are forced to buy the more
expensive products of an inefficient
domestic industry. Today, 22 industries
in Japan— most of them in such basic
materials as petrochemicals, fertilizers,
paper, textiles, and aluminum— are
classified as depressed. Recently, as the
yen strengthened, the Japanese Govern-
ment has instituted loan and other pro-
grams which I fear may act to keep inef-
ficient companies in business. It is vital
that such assistance, if there must be
assistance, promote the rapid adjust-
ment of enterprises out of inefficient
sectors; and this is, in fact, the
announced intention of the government.

Buying Practices. Many Japanese
companies prefer to buy products made
by companies in their own "group" or
with which they have been doing
business for many years. I recognize that
part of the reason for this has to do with
the nature of Japanese society. But the
result is that outsiders, whether
foreigners or Japanese, are excluded,
and this prevents the end user from
obtaining the best product at the best
price.

Financial Markets. Japan's postwar
financial structure has taken the savings
of the Japanese people and diverted
them primarily into industrial invest-
ment. Today, Japan's companies are

Department of State Bulletin

ECONOMICS

financing much of their investment from
new stock issues and corporate profits.
Yet Japan's high rate of savings con-
nues, so the surplus has been moving
verseas and expanding Japan's exports,
apan could put more of its savings to
ork at home. Yet its financial system
oes not effectively channel savings into
their most productive uses where they
would bring most benefit to the
(Japanese people. I believe, for example,
i that there is an unfilled demand in Japan
ifor consumer credit and housing loans.

Changing Course in Japan

JJapan is now at a historic turning point
in its relations with the international
jeconomy. There is a consensus building
En Japan that Japan must, once again,
transform its economy. This time, as
Prime Minister Nakasone told President
IReagan last April, Japan must rely more
;3n domestic demand as the engine of
growth. Japanese Government officials
and business leaders recognize that the
economic and foreign trade structures of
Japan, dependent as they have been on
! consistent trade and financial surpluses
; and the good will of the rest of the
world, can no longer be sustained,
oolitically or economically.

Over the last year or so, this need
I for change has been widely recognized.
! A.s you know, the Maekawa commission
recommended not only increased market
' access and further liberalization of
Japan's capital and financial markets but
also the promotion of domestic demand
and a transformation of Japan's indus-
trial structure.

However, Prime Minister Nakasone
and the Maekawa commission are not
the only ones calling for change in
Japan. The Keidanren, Japan's most
prestigious business organization, has
issued its own policy proposals, stating
that transition to a totally free trade
1 system must become a Japanese national
goal. It said that Japan should remove
all import restrictions, abolish all tariffs
on manufactured goods, undertake
thorough deregulation of its economy,
and achieve openness in its admin-
istrative systems and operations. The
Ministry of International Trade and
Industry (MITI), in its report on the
future of Japanese industry, said that
Japan must open up its market further
to foreign products and "positively
increase" imports cf manufactured
goods by promoting a horizontal division
of labor so that imported manufactured
I goods will be woven into Japan's produc-
tion and consumption structures.

U.S. Views on Structural
Adjustment in Japan

Such views in Japan dovetail broadly
with U.S. views. While it is, of course,
for the Japanese themselves to deter-
mine the particular policies and reforms
appropriate to the Japanese context, the
United States would like to see:

• Greater internationalization,
deregulation, freedom, and openness
throughout the Japanese economy; and

• The removal of those inefficiencies
that characterize much of Japan's
economy.

Consistent with our trade policy vis-
a-vis Japan, we would also want to see:

• Broad-gauged changes in Japan
that remove the policies, practices, and
attitudes that discriminate against
foreign companies, products, and serv-
ices; and

• Japan becoming an importing
superpower, not just an exporting
superpower.

The point I would make is not simply
that stronger Japanese growth must be
generated from domestic sources if cur-
rent account imbalances are to be
reduced in an orderly, sustainable
fashion. Rather, it is that there is a very
wide range of attitudes, policies, and
institutions which have contributed to
the one-sided, export-oriented nature of
the Japanese economy and that efforts
to restructure need to take the same
wide range.

I am talking about fundamental
structural change in the Japanese
economy— not, for example, the matter
of how much more money should be
spent on public works projects. Thus, I
would hope Japan would undertake a
thorough assessment of government
policies which affect the allocation of
resources among sectors and between
consumption and savings. If government
policies interfere with the transmission
of market signals, the structure of the
economy evolves in a distorted way.

Let me take the example of
agriculture one more time. I have
already pointed out that Japan's protec-
tionist agricultural policy directly
reduces imports and costs consumers
dearly. But Japanese agricultural policy
has another, unintentional effect. Price
supports for agricultural products in
Japan encourage continued use of scarce
land for farming. This system, combined
with the tax treatment of capital gains,
limits the availability of land for residen-
tial purposes. The scarcity of residential

property is reflected in the very high
cost of housing which makes it necessary
to secure a large mortgage. But because
mortgage financing is scarce, it is very
expensive. Thus, in order to have afford-
able mortgage payments, a potential
homeowner must come up with a large
downpayment. The consumer's need to
accumulate large amounts of saving to
make a sizable downpayment and subse-
quently heavy monthly mortgage pay-
ments depresses the consumer goods
market and also, perhaps, imports.

This is just one example of the kinds
of government policies which need to be
changed if Japan is to build a solid
domestic basis for growth. Whatever the
purpose of these policies, they clearly
have significant side effects on the level
and structure of domestic demand in
Japan. This has consequences both for
the current economic situation and for
the future. A stronger, more flexible
domestic market is important to meet
the immediate problem of external
imbalances, and also to prepare Japan's
economy for the future, when newly
industrialized countries will increase
competition in export markets tradi-
tionally dominated by Japanese
products.

Savings, Investment,
and Structural Imbalances

The external imbalances I have men-
tioned reflect internal imbalances
between saving and domestic invest-
ment. The surplus in Japan's balance of
payments is essentially equal to the
excess of its domestic savings over its
investment. In particular, Japan's tradi-
tional fiscal, monetary, and regulatory
policies may be encouraging higher sav-
ing, lower investment in housing and
infrastructure, greater emphasis on
export-led growth, and larger trade
surpluses than more efficient, market-
oriented policies might encourage.
Japan's savings are large, and because
its economy, except for export indus-
tries, is generally inefficient, only part of
those savings is invested in Japan. A
large part is invested abroad, and
foreign investment in Japan is relatively
low. Thus, an important step toward
reducing Japan's payments surplus is to
increase the attractiveness of Japan to
investors— both Japanese and non-
Japanese investors. This, in turn,
requires drastic measures to reduce the
inefficiencies in the Japanese economy.

Let me hasten to add that this is the
kind of "demand expansion," not fiscal
deficits or wasteful public works, that
will benefit the Japanese people and also

May 1987

ECONOMICS

reduce the trade imbalance— that is,
expansion of the demand for investment
in Japan.

The U.S. -Japan Structural Dialogue

As you know, President Reagan and
Prime Minister Nakasone agreed last
April that it would be useful for our two
governments to discuss structural
economic issues in both our countries.
They both recognized that it was time to
emphasize fundamental domestic
imbalances that create trade and other
external imbalances— and to begin to
correct them. The dialogue is intended to
define better the causes of bilateral and
multilateral imbalances and to identify
alternative solutions. In this way, it can
contribute to reducing external
imbalances.

For the U.S. side, a central theme
for the dialogue, as we see it, is that the
right policies can contribute not only to
an easier adjustment by Japan to a
changing international environment but,
in addition, can make a much-needed
contribution to the international adjust-
ment of other countries. Structural
adjustment, therefore, is now a key ele-
ment of U.S. economic policy vis-a-vis
Japan.

The importance of the structural
dialogue to both our countries is mir-
rored in the high-level participation in
our two meetings thus far. Both sides
have been represented by at least five
sub-Cabinet officials, and the Japanese
have traveled twice to the United States
for the meetings. My co-chairman,
[Assistant Secretary for International
Affairs] David Mulford of the Treasury
Department, and I have been joined by
Dan Amstutz, Under Secretary of
Agriculture; Bruce Smart, Under
Secretary of Commerce; and Michael
Mussa, a member of the President's
Council of Economic Advisers.

The Japanese have sent Vice
Ministers from Foreign Affairs, Finance,
Agriculture, MITI, and the Economic
Planning Agency. In the course of the
dialogue, we will be studying the evolu-
tion of the external imbalances; the
macroeconomic setting in the two coun-
tries and how it contributes to the
imbalances; and a number of specific sec-
toral questions, such as agriculture,
housing, consumer credit, services, and
labor markets. One way or another, the
dialogue will shed some light on the prin-
cipal factors that are contributing to our
respective trade deficits and surpluses.

It is important to emphasize that the
structural dialogue is a dialogue or
exchange of ideas, not a negotiation. The
United States has no particular list of
requests or specific desired outcomes.
Rather, we hope to bring for considera-
tion by the Japanese the U.S. perspec-
tive on the international dimension of
the problems, as well as some con-
siderable experience with many of the
issues of deregulation and market
liberalization.

We have had broad experience in
making our markets work better, and
our experience may hold some relevance
for Japan. The U.S. economy, for exam-
ple, recovered so vigorously from the
1981-82 recession, in part, because we
had removed many structural impedi-
ments to growth through deregulation,
tax reform, and other measures. In part,
too, the strength of the recovery was
because, thanks to a presidential veto,
we avoided the usual pump-priming
measures that are alleged to create jobs.
I believe that had Japan implemented
similar measures 5 or 10 years ago—
measures such as are now recommended
in the Maekawa report— Japan would be
better able to adjust to its current
economic situation.

Exploiting Change

In closing, let me reiterate a point I ha\
been making to European audiences
when I discuss structural adjustment
issues with them. That point is that we
must recognize that change is not only
inevitable but also desirable and that ou
futures lie in exploiting change, not
hampering it.

Japan's changing, of course, is a
remarkable, almost unprecedented
development. There are few countries
brave enough to undertake the kind of
far-reaching review of what they must
do to fulfill better their international
responsibilities and promote their own
welfare. I would stress, however, the
need for timely action. No one would
contend that rapid structural economic
change is easy or painless. Demands for
change can overwhelm the ability of a
democratic political process to deal with
the costs. The Reagan Administration
has kept the negative forces of protec-
tionism at bay. Recent currency adjust-
ments will help make our products more
competitive in world markets, and our
trade deficits should start to shrink. But
the fundamental imbalance between pro
duction and spending, both in the Unitec
States and in Japan, needs more work.
Our dialogue on structural adjustment is
a key part of that work. ■

U.S. Foreign Agricultural Policy
and the Sugar Program

by Douglas W. McMinn

Address before the International
Sweetner Colloquium in Palm Springs,
California, on February 2b, 1987. Mr.
McMinn is Assistant Secretary for
Economic and Business Affairs.

Before dealing with the sugar issue
specifically, let me put it in the broader
context of world agricultural policies,
foreign relations, and an improved
domestic farm economy.

Trade in farm products has become a
major source of friction in international
relations. I'm sure that comes as no sur-
prise to you. Government price support
programs, here and abroad, have sev-
erely weakened the link between supply
and demand. One important result has
been massive overproduction. The
world's markets are glutted in nearly all
major agricultural commodities. Export

prices are weak, generally speaking, anc
world trade (in volume terms) in farm
products has contracted sharply from
levels earlier this decade.

World grain sales, for example, fell
from 203 million tons in crop year
1980-81 to an estimated 171 million tons
in 1986-87. World production, on the
other hand, shielded by government pro-
grams, has continued to climb.

In addition to excessive price sup-
port programs, government subsidies
and trade barriers have become rampant
in agricultural trade. Disputes are
multiplying, and nagging agricultural
trade issues increasingly complicate rela-
tions with our trading partners, many of
whom are among our closest friends and
allies.

The European Community (EC) is
responsible, along with ourselves and
others, for some of the major distortions
in world agricultural trade. The Euro-

Department of State Bulletin

ECONOMICS

Ipean Community has built its common
;agricultural policy (the CAP) on a pro-
tective system that aids farmers with
jhigh price supports, stimulates over-
production, and floods its surpluses onto
(world markets through export subsidies,
'import trade is also carefully managed,
lin some cases by quotas, in others
through variable levies.

The Japanese have pursued protec-
tionist policies as well, especially with
respect to Japan's domestic rice, citrus,
ind beef producers. The result is prices
to consumers in Japan many times
greater than would be the case if those
Droducts were obtained abroad.

In this distorted trade environment,
America's advantageous resource base,
advanced agribusiness technology, and
skilled and dedicated farmers really
zount for less and less. The value of U.S.
igricultural exports has persistently
ieclined in the 1980s, from a peak of
!: 543.7 billion in fiscal year (FY) 1981 to
if 26.3 billion in FY 1986. Through
narketing loans, the export enhance-
nent program, and a number of other
jrograms, the United States has
■i -esorted to subsidies to price agricultural
I exports at world market prices. Enormous
;ums are now being transferred to farm
aroducers from taxpayers and consumers.

The question is: how can we put an
?nd to the damage to our exports— and
;o world agricultural trade generally—
;hat is being inflicted by distortive
foreign and domestic agricultural
oolicies? The answer is an obvious but
difficult one. Every country must be
Drepared to pursue meaningful reform
an both the international and domestic
fronts— making agriculture more respon-
sive to market forces.

Reform Must Include World
Trade and Domestic Policies

Internationally, the United States and
its trading partners launched a new
round of trade negotiations last year—
the Uruguay Round. Agriculture will be
a focus of this new round of negotia-
tions. We are aiming for new interna-
tional rules to discipline trade in
agriculture and to dismantle the tradi-
tional barriers that inhibit trade.

Domestically, agricultural nations
must drastically reform their own farm
programs. This is where the real break-
through will occur. Implementation of
program reform will take time, but our
goal at the end of the process is a freer
market. Farmers in every major country
i should be able to base production deci-
sions on market signals. Now it isn't
likely that every country will agree to

abandon its farm programs altogether.
What we seek is that government farm
programs not give incentives to over-
produce and that they not distort trade.
In that kind of climate, U.S. farm
exports could and would expand
substantially.

For its part, the Administration is
submitting legislation to Congress to
accelerate the process of putting our
domestic programs on a more market-
oriented basis. We would like our
Secretary of Agriculture to have greater
flexibility to reduce target prices. We
would also like to pursue a policy of
decoupling, where we would give
farmers an option of receiving income
support in a manner not dependent on
production. The proposed measures
would not cure all our trade problems,
but they would bridle the runaway
growth of stocks in the United States
and reduce overall program costs.

The Sugar Program

The international sugar market has mir-
rored, in many ways, the ills of world
production and trade in agricultural
products generally. Production spurted
in 1981-82 in response to very high
prices the previous 2 years. Since then,
world markets have been unable to ab-
sorb the excess stocks built up in that
year and the following one. Despite
world market prices depressed below
costs of production in almost every pro-
ducing country, government support
programs have prevented any ap-
preciable drop in production. Although
global production and consumption of
sugar are now roughly in balance,
forecasters predict no significant im-
provement in world sugar prices due to
excess stocks.

The sugar programs of the European
Community and the United States are by
far the main sources of distortion in the
world's sugar market. The European
Community has a tightly controlled
sugar system. Although limited through
internal quotas, EC production is
millions of tons greater than would be
the case without high domestic price sup-
ports. The EC also provides preferential
access to its market to certain develop-
ing countries of Africa, Asia, and
elsewhere. Since production in the EC'
exceeds demand, the Europeans sub-
sidize the disposal of sugar exports in
third markets, competing with more effi-
cient producers. The result is a system
which inhibits comparative advantage,
adds to consumer costs, and is a major
factor depressing world prices.

It is difficult to put a precise figure
on the impact of European Community
policies on the world sugar market. As a
rough order of magnitude, however, the
EC was a net importer of about 1 million
tons of sugar in the early 1970s. Net EC
sugar exports are now nearly 3 million
tons. Thus, the swing from net importer
to net exporter has been about 4 million
tons, and this may considerably under-
state the effect of EC sugar price sup-
ports on its production.

The high sugar price supports writ-
ten into U.S. law by the 1981 act have
had, predictably, much the same effect
on domestic production and on the
world market as the European Com-
munity's program. In 1980, before the
present sugar program was written into
law, annual sugar consumption in the
United States was 10.2 million tons.
Domestic production was 5.7 million
tons, and imports of 4.7 million tons
made up the difference. In 1980, sugar
still commanded 67% of the caloric
sweetener market in the United States,
despite inroads from corn sweeteners
during previous decades.

Since 1980, production under the
sugar program has increased 10% to 6.3
million tons. This is high-cost sugar. The
average cost of refined U.S. -grown beet
sugar was about 22<t per pound in 1984;
raw cane sugar cost about the same. In
the Caribbean and Central America, the
production cost of cane sugar would be
in the range of 12C-15C per pound for
efficient producers. Nevertheless,
imports for domestic consumption will
fall to about 1 million tons this year,
down nearly 4 million tons in just 6
years. By 1986, U.S. sugar consumption
had dropped to 7.8 million tons— a
market loss of 2.4 million tons since
inception of the 1981 sugar program— as
high-fructose corn syrup(HFCS) cap-
tured the soft drink market and virtually
every other industrial use suitable for li-
quid caloric sweeteners. Although there
is some room for debate, it seems likely
that the United States will become a net
sugar exporter over the next 2-4 years if
there is no adjustment to the program.

Program Costs. The cost of our
sugar program, taking into account all
factors, is extraordinary.

For the food processing industry, the
program costs a bundle and gives
another edge to foreign competition. We
are now importing more sugar in the
form of foods which used to be processed
in this country. From FY 1982 to FY
1986, the sugar entering the United
States in the form of blends and prod-
ucts increased by 300,000 tons. I don't

May 1987

ECONOMICS

need to belabor the point to many of you
in this audience.

U.S. consumers will have to shell out
about $3.2 billion extra this year for
sugar and for products containing sugar
or corn sweeteners, as a result of the dif-
ference between U.S. and world market
prices.

The sugar program also imposes an
enormous strain of adjustment on
foreign suppliers, many of whom are
friendly nations that face severe
economic difficulties and, in some cases
like the Philippines, confront dangerous
political challenges as well. U.S. sugar
imports in 1981 were valued roughly at
$2 billion. This year, the figure will be
about $390 million. For our Central
American neighbors— who have endured
an economic slump throughout the 1980s
and, in two countries, are struggling
with communist-led insurgencies— the
negative effects of the sugar program
are large in comparison with the trade
benefits in the first several years of our
Caribbean Basin Initiative, an initiative
aimed at promoting economic develop-
ment. Foreign exchange earnings are
not the whole story. Jobs lost in sugar, a
labor-intensive industry, cannot easily be
made up in new industries. As our
market has become closed, some of our
traditional suppliers have become more
dependent on the Soviet market than on
us to earn critically needed foreign
exchange from sugar.

Impact on Suppliers. The impact on
our suppliers probably stands out in
boldest relief in the case of the
Dominican Republic. In 1981, exports to
the United States of almost 750,000
short tons earned roughly $330 million
for that country. Total sugar sales
amounted to more than one-third of total
export earnings. This year's quota of
160,000 tons for the U.S. market will
bring in about $65 million— about one-
fifth as much. The Dominican Republic
recently signed a long-term agreement
with the Soviet Union, which, for several
years now, has been a larger buyer of
Dominican sugar than the United States.

The Philippines, our second largest
supplier, will earn about $70 million less
this year than in 1981 from sugar sales
to the United States. While the decline
in earnings is not as dramatic as in the
Dominican case, the Philippine sugar
industry is concentrated in an area
where economic conditions have con-
tributed to the strength of a significant
communist insurgency.

The U.S. sugar program, as we all
know, is a corn program as well. HFCS
has already captured the markets in

which a syrup is technically suitable, and
these constitute half of the caloric
sweetener market. This could never have
been done without the price umbrella
provided by the sugar program. Before
very long, the corn sweetener industry
could invade sugar's remaining markets
in the United States with crystalline
fructose. Some experts believe that, in
high volume, crystalline fructose could
be produced competitively at the current
domestic price of sugar, if that price
were considered secure.

The Need for Reform. If the sugar
program is such bad economic policy, so
costly to consumers and to our foreign
policy objectives, what national interest
does it serve? Frankly, I see none. The
normal justification for protecting an
industry from import competition, which
this Administration strives to do only in
exceptional cases, is to allow temporary
breathing room to cut costs and adjust to
competition. The sugar industry,
however, is not undergoing any adjust-
ment process. Quite the contrary, the
sugar program is drawing new resources
from other uses into inefficient sugar
production. Many farmers are in the
business solely as a result of the artificial
support price. The average return per
acre nationwide, including program
benefits, is $279 for beet sugar and
$168 for cane. The return for corn pro-
duction is somewhat comparable at $155
per acre, but similar figures for wheat
and soybeans are in the range of
$60-$80 per acre. The income of the
average sugar producer (about 12,500 in
number) is increased by nearly $200,000
every year at the consumer's expense.
Furthermore, unlike major crop pro-
grams, sugar price supports cannot be
reduced progressively under present
law. Thus, as other crop programs inch
toward market pricing, the incentive to
produce sugar grows greater every year.

What we have, then, is an agri-
cultural program where the need for
reform is urgent. The Administration
has developed a program for reform.
The main features of the Administration
bill, which is being readied for submittal
to Congress, are, first, a reduction of the
loan rate from 18C per pound to 12<f per
pound. There would be a direct payment
keyed to a historical base, beginning
with 6C per pound in FY 1988 and
phased out over 5 years. A limit would
be placed on payments to the largest
producers. Also, the requirement that
the program be cost free to the U.S.
Government would be deleted.

Sugar producers are obviously not
going to carry the banner for lower

prices. That puts the ball in the hands oi
the domestic and foreign parties that
will benefit from sugar policy reform. Ai
especially important constituency is the
industrial users of sugar and competing
sweeteners.

There is also a case to be made to
sugar producers. It does not make sense
even for them, to try to hang onto the
present program forever. Some
resources simply must be taken out of
sugar.

• Without a sugar price umbrella,
HFCS would not have made such swift
and extensive inroads on domestic sugar
markets. If deprived of a sugar price
umbrella, crystalline fructose would
probably not go beyond its present
status as a high-cost specialty item.

• Imports have borne the brunt of
HFCS competition thus far. But in just e
few years, imports will be squeezed out
entirely, and the sugar industry might
have to live with curbs on production.

• Some producers are marginal,
even at current prices. With the right
incentive, they might want to get out of
sugar and grow something else.

• I also think there is a sense of
basic fairness to which we might appeal.
It is hard to defend protection for sugar
at levels significantly more favorable
than for other crops.

Conclusion

Government agricultural policies, both
here and abroad, have distorted world
production patterns, imposed tremen-
dous costs on consumers and other sec-
tors of the economy, and severely
strained relations among trading
nations. Many countries, but particularly
the EC nations, share with us the blame
for creating these damaging conditions.

Likewise, all countries, including
ourselves and the EC nations, share the
responsibility for correcting matters.
Multilateral action is required to design
rules that will discipline trade in
agriculture. At the same time, every
country must reform its own domestic
programs. The Administration has taken
the first step in this regard: we have
developed an agricultural reform
package to make U.S. agriculture more
market based. The EC and other coun-
tries must also begin the process of
dismantling the distorted policies they
have created.

Sugar is a specific case where the
economic and foreign policy damage
inflicted by government agricultural
policies is particularly severe. The costs
to consumers, the distortions to the U.S.
economy, and the foreign exchange and

Department of State Bulletin

EUROPE

|ob losses suffered by important allies
:re large and unsustainable. The need to

leform government sugar policy is

j.cute.

Unfortunately, the facts concerning
he costs of our sugar policy are not as
Videly known as they need to be. The

challenge for all of us is to increase the
public understanding of the costs to
ourselves and others of the current U.S.
sugar program and the tremendous
benefits of a reformed U.S. sugar pro-
gram. ■

J. S. -Soviet Relations

y John C. Whitehead

Address at the Forum, on U.S. -Soviet
[trade Relations on March 5, 1987. Mr.
I Whitehead is Deputy Secretary of State. 1

. ,t is a pleasure for me to see so many
lamiliar faces, and to have an oppor-
| unity to address this final session of the
'orum on U.S. -Soviet Trade Relations. I
rould like to share with you my views on
inhere U.S. -Soviet relations stand in the
ixth year of this Administration.

; 'rinciples

larly in his Administration, President
. teagan articulated an approach for deal-
ig with the Soviet Union. He based this
pproach on the principles of realism,
trength, and dialogue.

He insisted on a more realistic
ssessment of the Soviet Union. We
ecognize that the Soviet Government
irofesses an ideology that conflicts with
he beliefs and values of the American
>eople and this government. We recog-
lize that both we and the U.S.S.R. vie
I or influence around the world. This
neans that competition and periodic ten-
ions are— and are likely to remain—
nherent in our relationship.

The President bases his approach on
he need for Western strength in word
ind deed. Over the last 6 years we have
vorked hard to develop a Western
illiance that is economically healthy,
Dolitically united, and militarily strong.
vVe are now in a position to deal with the
Soviets from a position of renewed
strength and confidence.

The President also called for
iialogue with the Soviets when it is in
3ur interest. Realistically, we cannot
ignore each other. Dialogue means work-
ing with the Soviets whenever it is in
our interest to do so. While we must be
ready to meet all Soviet challenges, we
will at the same time search, wherever
possible, for common ground. We must
try to work out our differences where
possible, and to manage them where
they appear irreconcilable.

Four Challenges:

President Reagan insisted on taking a
broad, long view of the relationship; he
insisted that the United States focus not
just on arms control, but on other areas
that affect superpower relations. Despite
initial Soviet resistance, we have slowly
succeeded in engaging the Soviets in
discussions in all four areas:

• First, arms control, because of its
obvious significance to mankind;

• Second, regional issues, because
Soviet behavior in the developing world
threatens Western security and global
stability;

• Third, human rights: we have
insisted that human rights be on the
agenda. Americans feel strongly about
human rights and we can't isolate our
concern from the rest of the relation-
ship; and

• Fourth, in our bilateral contacts
with Soviets, we have focused on ways
to make exchanges work more to our
advantage.

Let me talk in a bit more detail
about how we view the four dimensions I
have identified in U.S. -Soviet relations.

Arms Control

Year in and year out, it is arms control
that attracts the most attention. Given
the sheer complexity of the issues
involved, and the consequences of
miscalculation, it is certainly an area of
great challenge. We have sharp dif-
ferences with the Soviets over arms con-
trol, but at the same time, we have made
considerable progress, both at Reykjavik
and in Geneva.

At Reykjavik, the leaders of the
United States and the Soviet Union
discussed dramatic cuts in nuclear
weapons— a longstanding, bipartisan
U.S. objective. Some have taken issue
with some of the ideas that were dis-
cussed. But no one can take issue with
the fact that Reykjavik was a watershed,
a turning point in the way we negotiate
and over what we negotiate in arms con-

trol. Just this past weekend, the solution
on INF [intermediate nuclear forces]
that was worked out at Reykjavik came
a step closer to implementation.

We are heartened that the Soviets
finally have fallen off their insistence
that INF negotiations must be tied to an
overall settlement of all arms control
issues. We welcome General Secretary
Gorbachev's statement of Soviet will-
ingness to conclude a separate agree-
ment on INF without delay. This has
long been the U.S. position, and we are
prepared to move ahead promptly.

The U.S. [negotiators] tabled our
draft INF treaty this week in an effort
to move the talks forward, building on
the agreement reached at Reykjavik. We
hope the Soviets now are ready to nego-
tiate seriously with an eye to concluding
an INF treaty in the near future. A
number of issues remain, including the
treatment of shorter range missiles and
provisions for verification and inspec-
tion. Our team in Geneva is ready to
tackle these questions.

While we welcome this progress in
INF, we continue to press for completion
of a START [strategic arms reduction
talks] agreement reducing strategic
weapons. Here again considerable prog-
ress was made in Reykjavik, and every
effort should be made to complete a
treaty in this area. The Soviets continue
to link progress in START to agreement
in effect to walk away from the SDI
[Strategic Defense Initiative] program,
and this we will not do. But our teams in
Geneva continue to work hard on all of
these subjects.

Regional Issues

When we look around the world, we find
sharp differences between what the
Soviet leaders are saying and what is
actually happening on the ground.
Afghanistan, Central America, South-
east Asia, and Angola are all problem
areas.

Our own objectives are clear and
straightforward. We are determined to
take the steps necessary to protect our
interests and to work with our friends
and allies around the world in the cause
of peace and freedom.

As one means of pursuing those
objectives, we have developed during
this Administration an important
regional dialogue with Soviets. It is a
dialogue aimed at ensuring that Moscow
understands our views— and our deter-
mination to resist Soviet expansion.
Combined with a demonstrated will-
ingness to defend our interests on the
ground, such a regular, frank series of

May 1987

EUROPE

exchanges can reduce the possibility of
future confrontations and miscalcula-
tions. Under Secretary [for Political
Affairs Michael H.] Armacost will begin
a new cycle of meetings on regional
issues later this month.

Experience has shown that local fac-
tors often decide the outcome of Soviet
regional policy. Something of that sort
may be happening in Afghanistan,
although there is cause for skepticism.
But keeping channels of communication
open can affect Soviet decisionmaking.

Afghanistan

With the Afghan New Year and
Afghanistan Day 2 weeks away, I want
to say a few words about Afghanistan
and underscore the strength of this
Administration's views on the Soviet
occupation there.

Almost 8 years of conflict have
resulted in countless thousands of civil-
ian casualties and enormous devastation
to what once was a peaceful, nonaligned
country. Soviet-backed forces even bomb
towns in neighboring Pakistan. How-
ever, after these 8 years, the Soviets
exercise less control than before and are
forced to back an unpopular puppet
government that is split into warring
factions. The resistance has shown itself
increasingly effective militarily, to the
surprise of some skeptics. The Afghan
people have shown they will not submit
to a puppet regime.

Inside the U.S.S.R., the war is
unpopular. The Soviets say they want to
find a way out. Whether they mean what
they say is less certain. Thus far, they do
not appear ready to withdraw their
troops and allow Afghanistan's future to
be decided by the Afghans. We hope
they will conclude that they should
withdraw. If they do, they will find the
United States no obstacle to such an
outcome.

Human Rights

No discussion of our relationship with
the Soviets would be complete without
human rights. Because of our nation's
history, because of our commitment to
human rights and civil liberties, Soviet
human rights abuses inevitably color our
attitude toward the Soviet Government.

Human rights are not simply a
bilateral issue, but a matter of interna-
tional commitments freely undertaken
by the Soviet Union in signing the
Helsinki Final Act and other interna-
tional agreements.

We keep telling the Soviets that
steady, significant progress in human

rights is needed if there is to be a sus-
tained turn for the better in U.S. -Soviet
relations. We see some evidence our
message has begun to get through. The
picture is mixed since there is so much
that needs to be done, but we have seen
some encouraging signs.

Some prominent human rights cases
have been resolved— Andrey Sakharov
was released from internal exile; and
psychiatrist Anatoliy Koryagin, poet
Irina Ratushinskaya, and Jewish activist
Iosif Begun were freed before the end of
their terms. Last year the Soviets
allowed Anatoliy Shcharanskiy, and
eventually his family, to emigrate.

In January, the Soviets announced
the release of an additional 140 political
prisoners and said they were reviewing
the cases of 140 more.

We see mixed but more hopeful
signals on emigration. On the eve of the
current review conference on European
security and cooperation in Vienna, new
emigration regulations were published.
But we are concerned by the small num-
ber of people being allowed to emigrate.
Jewish emigration has dropped sharply
since 1982 and has been low ever since:
only 914 last year (compared to the peak
of over 50,000 in 1979).

Soviet officials have hinted emigra-
tion will rise in 1987. They claim that
500 Soviets received permission to
emigrate in January, which would be a
sharp increase over previous months.
We cannot yet confirm this figure, but
we do see indications of an upturn. We
hope that any rise in emigration will be
both significant and sustained. Mean-
while, an unprecedented number of U.S.-
Soviet divided family cases have been
resolved in the last year; 20 of 28
separated-spouses cases have now been
resolved.

We have witnessed what could be
the start of a welcome new openness in
the cultural area, with previously banned
books and films being released. These
steps stem primarily, in our view, from
Soviet internal political dynamics. To the
extent these developments represent the
first tentative steps toward a more
genuinely tolerant society and expanded
freedom of expression, Americans can
only welcome them.

Bilateral Agenda

Bilateral affairs are perhaps the least
visible but more active area of interac-
tion. Over the past year, scientific and
cultural exchanges and people-to-people
contacts have expanded steadily.

• Civil aviation links have been
reestablished.

• An exchange of consulates in New
York and Kiev is being implemented.

• We've increased cultural
exchanges. We are actively working on
other exchange programs in medicine,
science, education, and sports.

• All of this is taking place despite
developments such as the Daniloff affair
and our measures to rein in Soviet espi-
onage activities in the United States,
which in the past could have put a
damper on relations.

• That's because we've insisted that
our bilateral relations be firmly ground-
ed in our interests and on reciprocity.

Economic Relations

Let me now say a few words about U.S.-
Soviet economic relations. I come from
the business community and have not
lost my deep interest in international
trade. Trade with the Soviet Union has
its particular fascinations and frustra-
tions. Most Americans believe we should
trade with the Soviets. It seems to me
that more trade between us is better
than less trade. More trade means more
integration of the Soviet economy into
the outside world, and stronger pres-
sures on them to maintain a peaceful
relationship with that world.

At the same time, we must not per-
mit the leakage of sensitive technologies
with clear military applications. And we
must avoid sending signals we do not
mean to send in areas, such as human
rights, that for a variety of reasons have
become associated with trade. Thus, in
U.S. -Soviet trade we must balance a
number of important, equally legitimate
interests.

People may differ on where we draw
the line. But the rapid pace of today's
technological advancement, quickly
changing market conditions, and human
rights developments suggest that we
should be thoughtful and realistic in
drawing such lines.

There are some reference points.
The President has said he favors non-
strategic trade with the Soviets.
Secretary of Commerce [Malcolm]
Baldrige and Soviet Foreign Trade
Minister [Boris] Aristov met here a few
months ago and took positive steps in
that direction. Just last week I spent an
hour with his deputy. This Administra-
tion looks for more opportunities to build
on recent progress we have made.

It is evident that Gorbachev is not
satisfied with the Soviet economy and
wants to find some way to improve it.
Ministries have been reorganized; state
committees or super-ministries created
to deal with broad sectors of the econ-
omy; new laws on domestic private

Department of State Bulletin

EUROPE

enterprise have been passed and fledg-
Jing steps in the direction of democratic
reforms are being introduced in the
workplace; new faces are appearing.
Some changes affect the way the
[Soviets conduct foreign trade. New
k-egulations have expanded the number
,of ministries and enterprises that can
(have direct contact with foreign firms
and new laws have appeared on joint
ventures. We have heard new words
from the Soviet leadership, and in many
leases they are interesting. We will need
to see the resulting actions before we
can draw meaningful conclusions.

A number of U.S. business firms are
[actively discussing joint venture proj-
iects. Provided such projects make sound
business sense to the U.S. companies
and comply with our export laws and
regulations, they could be one way of
expanding our trade and commercial
relations. For our part, we have eased
some restraints that outlived their pur-
pose and that unnecessarily impeded
(U.S. -Soviet trade.

As you know, in January we allowed
foreign policy controls on the export of
m and gas equipment to the U.S.S.R. to
lapse. The U.S. oil and gas industry now
has an opportunity to compete for Soviet
■ markets on a more level playing field.
. We hope we will see concrete results of
;hat decision in the coming months. We
will be watching developments closely.
As an additional step, we and our
! lilies are reviewing current export
restrictions in hopes of simplifying the
list of prohibited items and speeding up
the licensing process.

What about Jackson- Vanik? Do the
mprovements we have seen in human
rights give grounds to expect MFN
most-favored-nation] status for the
U.S.S.R. in the near future? At this
I point, the answer has to be "no." What
we have seen so far are promising
trends— or, more precisely, the begin-
nings of what we hope will be trends.
:- We don't know if they will continue; we
(don't know how significant they will be.
fTime will tell and enable us to make an
intelligent call on Jackson- Vanik and
similar legislation further down the road.

In short, we face many challenges:
1 in arms control, regional issues, human
rights, and bilateral affairs. No one said
it would be easy. But if the Soviets are
I interested in improving relations, we are
ii ready to work with them to build a more
(stable relationship, sustainable over the
|long term. This is a time of challenge,
ibut also of great opportunity. We look
forward to tackling those challenges,
I and building on those opportunities.

The U.S.-Soviet Bilateral Relationship

by Mark R. Parris

Address before the Kennan Institute
for Advanced Russian Studies on
February 25, 1987. Mr. Parris is Direc-
tor of the Office of Soviet Union Affairs.

The announced theme of my talk today
is "U.S.-Soviet Relations— Where Do We
Go From Here." With apologies to Mark
Katz [Research Associate at the Kennan
Institute], with whom I agreed on that
subject in a hurried telephone conversa-
tion, that's not what I'd like to talk
about today— at least not directly.

Rather, I want to focus on an aspect
of our relations which is too often
overlooked— the U.S.-Soviet bilateral
relationship. All of you here are aware of
the four-part agenda that the Reagan
Administration has insisted upon in its
discussions with the Soviets over the
past 6 years— arms control, human
rights, regional issues, and, almost
always in last place, bilateral affairs.
Let's face it: arms control invariably
grabs the headlines in our relations;
human rights grab our emotions;
regional crises demand our attention.
But unless you work on the Soviet desk,
it seems, bilateral matters generally
miss the boat. I believe this has created
a skewed view of the superpower rela-
tionship. Today, I hope to redress at
least some of the balance.

U.S.-Soviet Relations and Detente

U.S.-Soviet bilateral relations comprise
the day-to-day, nuts-and-bolts, face-to-
face aspects of our relationship. They
include our consular, cultural, and com-
mercial relations. They involve the
maintenance, staffing, and protection of
our respective diplomatic missions and
the conduct of our respective mission
personnel. And they include exchange
programs and bilateral cooperation in a
variety of fields, from science and
technology to search and rescue. These
may strike some as fairly mundane mat-
ters. This audience will know better.
Many of you, over the years, have been
intimately involved in some of these
activities. I think you will also be aware
of how contentious the various issues
which make up our bilateral relations
with Moscow can sometimes be.

As I was preparing my remarks for
today, I happened to come across an old
pamphlet published by the State Depart-
ment in the mid-1970s during the height

of detente. In reading through it, I came
to a passage proudly proclaiming that 58
of the 105 bilateral agreements con-
cluded between the United States and
the Soviet Union since relations were
established in 1933 had been signed dur-
ing the preceding 5 years. These
included agreements on cultural
exchanges, science and technology,
environmental protection, medical
science and public health, space,
agriculture, transportation, atomic
energy, artificial heart research, energy,
and housing. Every one of these
agreements, and 41 agreements in all,
were concluded in the 2 years prior to
the pamphlet's publication.

As all this suggests, the expansion of
bilateral relations was considered an
essential feature of detente. It was part
of a strategy of involving the Soviet
Union in an embracing network of
agreements that would serve to restrain
aggressive Soviet behavior and lead to a
safer and more stable relationship. This
was an interesting strategy and perhaps,
at the time, even a defensible one. After
all, it had never been tried before. The
only problem with it was that it did not
work the way it was supposed to.

Historians can debate the reasons
for this. Certainly one factor was the
determination of the Soviet Union to act
in its self-interest, regardless of the
number of agreements it had signed with
the United States. This was, perhaps, not
surprising. But certainly the United
States could not ignore an unprec-
edented military buildup far exceeding
that needed for defense or the use of
Cuban surrogates in Angola and
elsewhere. Nor were we capable of
ignoring the crushing of the Soviet
human rights movement following the
signing of the Helsinki Final Act. In any
case, by the time the Soviets invaded
Afghanistan in late 1979, we were look-
ing around for a term other than
"detente" to describe our approach.
Hopes for ratification of the SALT II
[strategic arms limitations talks] Treaty
had been dashed. And as the Soviets
pursued their war against the Afghan
people, what had been an extensive net-
work of bilateral agreements was
stripped back to skeletal dimensions.

>Press release 56 of Mar. 6, 1987.

May 1987

EUROPE

Reconstructing the Bilateral
Relationship

The failure of detente was very much on
the mind of the Reagan Administration
when it assumed office in early 1981. No
one questioned the need to maintain a
relationship with the Soviet Union in a
nuclear age. But we were determined to
establish a relationship free from the
illusions that had doomed detente.

In considering how the relationship
should look, we were determined not to
place too much of the burden on arms
control. Arms control agreements— or
the pursuit of them— cannot, by
themselves, create a stable or satisfac-
tory relationship. That was the lesson of
SALT II. There are too many other
areas in which our interests intersect,
conflict, and must be managed if stabil-
ity is to be maintained. There was
general agreement, therefore, on the
need to draw the Soviets into dialogue
on issues which had, in the past, com-
plicated our relationship— such as
regional issues and human rights— even
as we sought to identify areas where
cooperation was in our interest. Thus,
the four-part agenda I referred to.

Compared to the rather Utopian aims
of the detente era, this was a modest
goal. We sought not to end conflict— that
was a fool's errand— but to manage con-
flict by engaging our adversary in con-
versation, and sometimes in agreement,
across the full spectrum of our relations.
The broader the relationship, the more
extensive our contacts, the clearer each
side's perception of the other's interests
could be expected to be and the more
likely we would be to avoid direct con-
frontations. The more likely it would be,
moreover, that any agreements reached
would be based on real interests which
could survive the inevitable shocks and
swings of a relationship between global
rivals.

In this framework, our bilateral rela-
tionship has been an understated but
important element. At the beginning of
the Reagan Administration, as I've said,
it was essentially a skeleton. Most of our
bilateral agreements had either been
allowed to lapse or been convenient grist
for sanctions in the aftermath of
Afghanistan. Those that remained in
force were operating at only 20% of the
pre-Afghanistan level. The imposition of
martial law in Poland resulted in further
erosion of the bilateral framework.

So we were largely starting with a
clean slate. In starting over again, we
sought to profit from some of the
experiences of the detente era. There

was a perception that many of the
bilateral agreements negotiated during
the period had not always served our
interests. The fact that so many had
been singled out so quickly for sanctions
was evidence of this. In retrospect, there
appeared to have been a pursuit of quan-
tity at the expense of quality. The pam-
phlet on detente I quoted from earlier
seemed to take as much pride in
numbers as in substance. We have con-
sciously sought to reverse this priority.
Our objective has been to conclude
agreements with the Soviets only where
they can demonstrably be shown to be in
our interest. For example, in negotia-
tions on the reestablishment of direct air
connections between our two countries,
we were determined to avoid situations
in which Aeroflot could systematically
undercut Pan Am— a situation which, in
the 1970s, led to Pan Am's abandoning
the Moscow market. We held out for,
and achieved, mechanisms which
guaranteed Pan Am a fair shake finan-
cially. Our first priority thus has been to
base our approach on a clear understand-
ing of our interests.

Another has been to reconstruct the
bilateral relationship on the basis of
greater reciprocity than had been the
case in the past. This attitude stemmed
from another legacy of the detente era.
In our efforts to move the Soviets into
agreements, we had too often gone out
of our way to please and sometimes took
pains not to offend— often without any
reciprocal benefit from the Soviet side.
The most visible symbol of this
phenomenon was Ambassador
Dobrynin's personal pass to the Depart-
ment of State parking lot. The issue was
not Ambassador Dobrynin, a diplomat's
diplomat who has always been respected
by his interlocutors at the Department of
State. It was the onesideness in the
treatment accorded our respective mis-
sions and mission personnel.

U.S. travel restrictions on Soviet
diplomats and other representatives in
this country, to take another example,
were much less severe than those on our
people in the Soviet Union. Soviet
diplomats could freely rent housing on
the U.S. market, while U.S. diplomats in
the Soviet Union found the conditions of
their housing tightly controlled by
uncooperative Soviet authorities. More
ominously, the Soviets had been able,
over the years, to build up their
espionage presence in this country to
truly serious proportions, while we con-
tinued to abide by the rules of the game.
By being nice guys, we only encouraged
the Soviets to take advantage of us.
We've since made clear that we're
prepared to be just as nice as they are.

Given our determination to enforce
reciprocity and seek agreements only
when clearly in our interest to do so, the
process of reconstructing the bilateral
relationship was likely neither to be
quick nor easy. In the beginning, it
proved easier to implement reciprocity thai
it did to negotiate favorable agreements.
Ambassador Dobrynin's parking pass
was the first thing to go. This was
followed, in 1983, by the creation of the
Office of Foreign Missions, established
precisely to ensure the reciprocal treat-
ment of our missions and mission per-
sonnel abroad. The first act of the new
office was to initiate controls on the
travel of Soviet diplomats designed to be
every bit as efficient as the controls on
our people in the Soviet Union.

These actions did not endear us to
our Soviet colleagues, but neither did
they elicit retaliation. Perhaps this in
itself was tacit admission of the
imbalance that had prompted them. In
any case, our objective is not simply to
make life miserable for our Soviet col-
leagues. No one wins from that kind of
game. Our purpose was— and is— to
ensure that each side's diplomatic mis-
sions are able to function as effectively
as possible.

Raising the level of dialogue on
bilateral issues, and exploring
possibilities of agreement, was a more
difficult task. As I noted, preliminary
attempts to do so were not helped by the
imposition of martial law in Poland in
December 1981, or by the Soviet
walkout from Geneva and the shootdown
of the KAL [Korean Air Lines] jetliner
in 1983. But our efforts began to bear
fruit in the summer of 1984. A round of
Consular Review Talks, delayed in the
aftermath of KAL, produced an
exchange of notes. The agreement, by
which we gained two additional Soviet
entry/exit points for our diplomats and
some useful guarantees on the issuance
of official visas, was modestly useful.
But it was notable primarily for the fact
that it was the first U.S. -Soviet bilateral
agreement since the invasion of
Afghanistan.

At the same time, in a June address
sponsored jointly by the Kennan
Institute and the Wilson Center— an
address many of you would have
heard— President Reagan enumerated a
number of proposals aimed at
significantly broadening our bilateral
dialogue. The President proposed
negotiations on a new exchanges agree-
ment to replace the one allowed to lapse
after the invasion of Afghanistan. He
called for renewed talks on opening con-
sulates in New York and Kiev and for

Department of State Bulletin

EUROPE

the revival of cooperative agreements in
environmental protection, housing,
health, and agriculture. The Soviets
responded. Shortly thereafter, negotia-
tions began on a new exchanges agree-
ment. Talks subsequently began on a
number of the other bilateral issues the
President had raised as well.

The improvement in atmospherics
resulting from these bilateral
developments helped pave the way for
the resumption of arms control negotia-
tions in Geneva early in 1985. The
return to Geneva, in turn, gave added
momentum to the bilateral relationship
j and made possible the subsequent agree-
'■ ment to hold a summit meeting in
j Geneva that November.

The weeks and months leading to the
summit witnessed the most intensive
bilateral discussions since the early
1 1970s and produced a number of
agreements that have had a lasting
j effect on the bilateral relationship. We
| signed a new general exchanges agree-
I ment, marking the resumption of official
academic, cultural, and performing artist
i exchanges between our two countries.
The Soviets agreed to President
i Reagan's proposal for a massive
. increase in people-to-people contacts. We
i signed an agreement on North Pacific
Air Safety aimed at preventing a recur-
rence of the KAL disaster. We agreed
on the simultaneous opening of con-
sulates in New York and Kiev. We
agreed to work together with other
nations to perfect the use of nuclear
fusion for peaceful purposes. And we
agreed to renewed consultations on
environmental protection.

Bilateral Agreements
and Exchange Activities

In the 15 months since Geneva, our
bilateral relationship has continued to
expand. Significantly, it has done so
despite periodic problems, both here and
in other areas of U.S. -Soviet relations,
that might have doomed progress in
earlier times. In April 1986, a civil avia-
tion agreement was signed leading to
the resumption of commercial airline
service. In October, a new bilateral
civilian space agreement was reached ad
referendum. Under the leadership of
Ambassador Steve Rhinesmith, the
people-to-people exchange initiative
agreed to at Geneva has made dramatic
headway in bringing more, and more
varied, participants from both sides into
contact with one another. A September
conference in Riga, Latvia, sponsored by
the Chautauqua Institution, brought 200
American citizens together with 2,000 of

their Latvian and Soviet counterparts to
discuss U.S. -Soviet relations. A similar
conference is planned for New York this
August. The U.S.-Soviet sister-cities pro-
gram is being expanded from 6 to 16
cities over the next 2 years and to 25
cities over the next 5 years. The Soviets
have also agreed to the largest exchange
of young people in our history, including,
for the first time, a minimum of 150
students of high school age. Com-
mitments have also been made for
exchanges of young professionals in a
number of areas, including agriculture,
stock breeding, and medicine.

Activity under existing agree-
ments—such as housing, medical science,
and public health— has been stepped up.
Last November, HUD [Housing and
Urban Development] Secretary Pierce
led a large delegation to Moscow in an
effort to expand and promote activities
falling under the housing agreement.
Surgeon General Koop and National
Institutes of Health Director
Wyngaarden both made trips to the
Soviet Union last fall to prepare for the
first meeting under the medical science
and public health agreement since 1978.
The meeting, to be held in Washington
this spring, will consider proposals
aimed at improving cooperation in such
areas as cancer and heart disease
research. In addition to renewed activity
in these areas, we are also exploring the
possibility of talks on cooperation in basic
science research, in transportation, and
in energy.

Are we falling into the trap of
sacrificing quality for quantity? No;
throughout this Administration we have
steadfastly avoided agreement for agree-
ment's sake. In our negotiations before
and after the Geneva summit, we have
been prepared to walk away from
agreements that we consider too vague
or inadequate in terms of U.S. interests.
And we have set up an extensive
machinery within the U.S. Govern-
ment—including State, the NSC
[National Security Council], the FBI
[Federal Bureau of Investigation], the
Defense Department, and various other
agencies— to scrutinize any potential
agreements. That process can be
frustrating, but it has produced some
good results. The agreements we have
reached, and the negotiations we have
pursued, have been undertaken because
we believe that the United States has
something to gain.

Those gains are not always tangible.
A major motivation in pursuing cultural
and people-to-people exchanges, for
example, has been to help remove the
artificial barriers the Soviet Government

has placed on its citizens and to promote
mutual understanding. We believe that
increased contacts with American
citizens will help to remove the distorted
stereotypes of America that Soviet
citizens have received from their own
media. We believe they will help Soviet
citizens learn how deeply we feel about
such issues as Afghanistan and human
rights and that these are not artificial
problems. We don't have any illusions
that these contacts will bring about
major changes in the Soviet Union over-
night. But I'm convinced it would be a
mistake to underestimate the impact
which exposure to thousands of
Americans over an extended period can
have on Soviet attitudes throughout the
system. And at a time when the official
line is "openness," may not the potential
impact of such exposure be even
greater? American access to the Soviet
Union, its institutions, and its people
will, in turn, give our people a more com-
plete understanding of Soviet strengths
and weaknesses and, therefore, a more
complete assessment of the Soviet
challenge to the United States.

In some cases, we have identified
and are realizing concrete benefits from
our expanding bilateral relationship. In
promoting increased science and
technology exchanges, we have been
particularly careful to ensure that they
have real scientific merit, bring tangible
benefit to the United States, and are car-
ried out on the basis of full reciprocity.
We have emphasized exchanges in areas,
such as nuclear fusion and the basic
sciences, where the Soviets have
knowledge and skills we can benefit
from. We have avoided exchanges where
there is a serious possibility of
technology transfer which could
adversely affect our security or where
the gain is predominantly on the Soviet
side. We have insisted that exchange
activities be balanced in terms of number
of visits, information exchanged, finan-
cial burdens, and the conditions of treat-
ment for exchangees. And we've worked
closely with American participants in
such exchanges to make sure they meet
their needs. These are the kinds of
exchanges the President was talking
about in his 1984 speech. They are in our
interest, and we will continue to pursue
them.

In addition to exchanges, there has
been a steady body of achievement
resulting from our expanding contacts
on bilateral consular and administrative
issues. Last spring, we proposed
establishment of a Bilateral Review
Commission that would meet annually to
review outstanding problems in this

May 1987

EUROPE

basic but increasingly important area of
our relationship. The Soviets agreed to
hold a trial run in Moscow last July, and
a wide range of issues was discussed,
ranging from diplomatic immunities, to
customs inventories, to embassy con-
struction. These are the kinds of issues
which no one notices when they work;
but the furor over the new office
building in Moscow shows the impact
they can have when they don't. Both
sides found the session useful and subse-
quently agreed formally to establish the
commission at the Vienna meeting
between Secretary Shultz and Foreign
Minister Shevardnadze last November.
A second session is currently scheduled
for late March.

The first session in July also spun off
a round of consular review talks, which
were held in late October. This round,
like the one in 1984, also produced an
exchange of notes, this time extending
criminal immunities to the families of
our respective consulate personnel— a
small step, but one of many.

Realism and Resiliency

Perhaps the most remarkable aspect of
all this bilateral activity has been the
fact that it has continued at a brisk and
steady pace despite setbacks and disap-
pointments in other areas of U.S. -Soviet
relations. The Bilateral Review Commis-
sion, for example, was agreed to at the
same Vienna meeting that failed to build
on the arms control progress made at
Reykjavik. The Reykjavik meeting itself
produced agreement on an ambitious
bilateral work schedule, and there has
been no diminution in bilateral activity in
the wake of the ongoing Soviet propa-
ganda offensive against SDI [Strategic
Defense Initiative]. Nor has our contin-
uing effort to enforce reciprocity in our
bilateral relations impeded our attempts
to make progress elsewhere.

A centerpiece of this effort, of
course, has been our insistence on reduc-
ing the unacceptable Soviet espionage
presence in this country. In March 1986,
we insisted on a dramatic reduction in
the size of the Soviet Mission to the
United Nations. Last October, the size of
the Soviet missions in Washington and
San Francisco was reduced to parity
with U.S. diplomatic missions in the
Soviet Union, ending a long imbalance.

These decisions were not made lightly,
nor were they made with the intention of
damaging bilateral relations. But they do
illustrate what, on occasion, must be
done to maintain a bilateral relationship
in which our own interests are given the

necessary weight. As you know, the
Soviets took retaliatory measures to our
October reductions which have made the
operation of our missions in the Soviet
Union somewhat more difficult. The retal-
iation was not unexpected. But it was a
price we were prepared to pay. And,
again, our firm steps in this sensitive
area have not taken on broader signif-
icance. This is, I think, a good indication
of the underlying resiliency of the more
realistic bilateral relationship we have
sought to establish over the last few
years. Both sides deserve credit for it.

David Shipler wrote recently in The
New York Times of a creeping inertia in
U.S. -Soviet relations. From our vantage
point, I can assure you I don't see it.
Across the agenda we've defined, there
is movement; there is dialogue; there is
an active interchange of ideas and con-
tacts. That is nowhere more true than in
the area of bilateral affairs. I have no
doubt, based on my 9 years in the area,
that there will be more shocks like the
Daniloff affair, KAL, maybe even Afghan-
istan. I believe we have established a
solid, realistic basis in our bilateral rela-
tions for weathering these episodes. I
believe that the progress we have made
in this area over the past several years
will be enduring progress, because it
reflects our national interests. ■

FY 1 988 Assistance
Requests for Europe

by Rozanne L. Ridgway

Statements before the Subcommittee
on Europe and the Middle East of the
House Foreign Affairs Committee on
February 3 and March 3, 1987. Ambas-
sador Ridgway is Assistant Secretary for
European and Canadian Affairs. 1

FEB. 3, 1987

I am pleased to be here again this morn-
ing as part of our ongoing discussions
with your subcommittee. I am here with
you today to discuss at greater length
our relations with Spain and Portugal,
particularly as they relate to security
assistance. I look forward to returning in
the near future to have a similar discus-
sion about Greece and Turkey.

U.S. interests have been well served
in recent years in the Iberian Peninsula.

First, we have seen a successful transi-
tion of two of our close friends to stable
democratic institutions. We are pleased
to see that both Spain and Portugal have j
developed strong, viable democracies.

Second, the momentum toward
greater political and economic integra-
tion of our West European allies has
accelerated. Spain and Portugal on
January 1, 1986, began the process
leading toward full economic integration
into the European Community.

This was followed in March by the
historic decision of the Spanish people in
a popularly held referendum in which
they agreed with the Gonzalez govern-
ment's position that it was in the
national interest for Spain to remain in
the North Atlantic alliance.

We welcome these developments and
anticipate that they will lead to a further
strengthening of the political and eco-
nomic fabric of these two key allies,
which is clearly also in our interest.

Let me turn now directly to the U.S.
security assistance program and its role
in the strength of Spain and Portugal
and in U.S. and NATO security.

Security assistance is a bilateral
program designed to complement our
broader objectives in the political, secu-
rity, and economic areas. The program
enables us to obtain access to important
base facilities while at the same time
helping allies to modernize their armed
forces. In the cases of Spain and Por-
tugal, these programs have long histo-
ries and are directly related to commit-
ments undertaken in specific bilateral
agreements. I can tell you that our
security assistance monies have played
an important role in the ability of both
countries to make a contribution to the
common defense.

Spain

Our access to air and naval facilities in
Spain are a vital link in the defense of
the West. Among the major facilities
used by our forces are the port and naval
air station at Rota; Torrejon Air Force
Base, where we base our only permanent
forward deployed air combat power on
NATO southern flank; and transport and
training facilities at Zarogoza Air Force
Base.

We are at present negotiating with
Spain about a successor accord to the
1982 agreement, whose term ends in
May 1987. In December 1985, Spain and
the United States issued a joint com-
munique setting forth the principles that
would guide us in the base negotiations.
It states, inter alia: "Upon agreement,
the adjustments will involve a phased

Department of State Bulletin

EUROPE

•eduction of the U.S. military presence
n Spain based on the assumption by the
Spanish Armed Forces of specific respon-
sibilities and missions currently under-
aken by U.S. forces in Spain, while
naintaining the overall defensive capa-
cities and level of security for both
;ountries and their allies."

These remain the basis for discus-
sion. We believe that within this frame-
York of trust and cooperation, we can
:raft a satisfactory agreement. We hope
hat this new agreement will mark a
najor milestone in our relationship with
Spain.

Successful negotiations must be built
|>n the belief of both parties that the
Ibther honors its undertakings. The pres-
ent base talks will be made more difficult
if we allow the perception to grow in
[Madrid that we have not met our best-
efforts pledges on security assistance
itinder the 1982 agreement. In the 1982
j.ccord, we agreed to provide Spain with
lecurity assistance for the life of the
agreement. Our best-efforts pledge on
1 ecurity assistance was understood by
:>oth sides to mean that the United
I States would try to provide $400 million
h foreign military sales (FMS) credits,
1 12 million in economic support funds
ESF), and $3 million for international
ii'iilitary education and training (IMET)
ach year.

Spain has made significant improve-
I nents in its armed forces in recent
li ears, and FMS credits are vital to the
I nodernization of the Spanish military.
I Madrid has used part of its annual FMS
: redits to finance the purchase of 72
\\ ''-IS aircraft, thereby providing a major
looost to Spain's air defense capabilities.
On the ESF side, the annual appro-
bation has helped us pursue success-
ully a major U.S. policy objective in
Spain— broadening and deepening the
| letwork of ties between all levels of

Spanish and American society. By fund-
ling the successful work of the Joint
: Committees on Education and Culture
l.nd Science and Technology, the annual
SSF appropriation has created scores of
links between the American and Spanish
I cademic, cultural, and research com-
Inunities. Our IMET program continues
lo foster ties between the United States
li.nd the Spanish military while helping to
rlevelop the professional skills of Spain's
^rmed Forces.

In FY 1986, $382.6 million FMS,
l;il.48 million in ESF, and $2.29 million
n IMET were appropriated for Spain,
lightly below FY 1985 levels because of
jramm-Rudman-Hollings reductions.

Our assistance for FY 1987 fell
telow the "best-efforts" level contained

in the Administration's request from
$400 million to $105 million in FMS and
from $12 million to $5 million in ESF.
Through a mixed package of offering
Spain FMS credits at concessional rates
for the first time and helping the
Government of Spain to place slightly
more expensive commercial credits, we
believe we can put together an FY 1987
package that meets our commitments
and the needs of the Spanish Govern-
ment. The Administration plans to make
a $200 million supplemental request for
concessional rate FMS credits and $7
million in ESF for Spain in FY 1987.

For FY 1988, we are requesting
$265 million in FMS credits for Spain,
$12 million in ESF funds, and $3 million
for IMET. Because of budgetary con-
straints, our FY 1988 request is quan-
titatively below what we would like. We
have tried to overcome this problem by
improving the quality of the assistance
to be provided.

Our FY 1988 request for FMS may
appear to be below the "best-efforts"
level, but in the current budget situation,
we must all make extremely hard choices
among deserving friends and allies. This
is our "best effort." The Spanish
Government has so far shown great
understanding of the difficult budget
situation in Washington, but we must
not abuse this cooperative attitude. In
the face of the significant cuts in FMS
credits for Spain, it is even more impor-
tant that we demonstrate our good faith
by reaching the "best-efforts" levels in
the other two security assistance
programs.

Portugal

The United States also has vital military
and economic interests in Portugal. Por-
tugal, along with the United States, was
a founding member of NATO. Our mili-
tary interests flow from Portugal's
strategic location at the southwestern
approaches to NATO from the Atlantic
and agreement on the use of the Lajes
Air Force Base in the Azores further
west. Our use of this base goes back to
access granted during the Second World
War; our presence at Lajes was formal-
ized in 1951 by a bilateral agreement
and has been continuous since.

Portugal is a reliable and steadfast
ally. In 1973 Portugal alone among our
allies allowed U.S. planes to transit en
route to resupplying Israel during the
Yom Kippur war. In the 1980s, Portugal
stood foursquare with us during the Iran
and Afghanistan crises.

In 1983 the Portuguese and we
renewed our use of Lajes until December

1991. As a part of that agreement, the
United States promised its "best
efforts" in furnishing adequate military
and economic assistance to Portugal. In
economic assistance, the United States
agreed to seek an increase in ESF, with
the understanding that a substantial part
of these funds would go to the regional
government of the Azores and the other
half to the Luso-American Development
Foundation or development projects in
mainland Portugal. In addition to IMET,
we provided $105 million in military aid
(MAP and FMS) in FY 1984 and $125
million in FY 1985 in accordance with
our commitment. Because of overall
budget pressure, we were unable to
meet this level of commitment in FY
1986, which fell to a total for MAP and
FMS of $110 million.

This fiscal year, we are attempting
to redress the problems posed by
reduced levels of security assistance fund-
ing through an FY 1987 supplemental
requesting $15 million in ESF (which
will bring total ESF to approximately
$80 million) and $30 million in MAP for
Portugal (which will bring the total to
$110 million). We also expect to call on
the southern flank amendment to the
Foreign Assistance Act, which allows us
to transfer used U.S. forces equipment
to Portugal. This Administration is
presently consulting with the Govern-
ment of Portugal on a list of equipment
which would complement items already
in the inventory of the Portuguese
Armed Forces.

For FY 1988, we are requesting for
Portugal $80 million in ESF, $85 million
for MAP, $40 million for FMS credits,
and $2.55 million for IMET training. We
like to think of the present Portuguese
program as a package. It consists of the
funding levels I have just discussed
which will be provided under terms
which are more advantageous than in
the past. To this we will add the real
value to the Portuguese Armed Forces
of the excess defense articles we will
provide under the southern flank amend-
ment. Taken together, we believe the
package will meet our commitments to
Portugal.

The economic component of our
assistance package is particularly impor-
tant to the pursuit of our interests in
Portugal. Despite some significant
economic advances, Portugal remains
the poorest country in Western Europe,
with an estimated per capita income in
1985 of $2,150. ESF funds-half of
which are transferred by the Govern-
ment of Portugal to the Azores— have
been important to Portugal's struggle
to recover from years of austerity, the

Jay 1987

EUROPE

absorption of 700,000 refugees from
the former African colonies, and the
nationalizations and expansion of the
public sector in the 1974-75 revolu-
tionary period. The United States has a
major stake in the continued economic
development of Portugal.

Our military assistance request of
$85 million in MAP, $40 million in FMS,
and $2.55 million in IMET is the mini-
mum which will allow us to fulfill our
base agreement commitment to the Por-
tuguese. The Portuguese Armed Forces
are in acute need of modernization, and
the FY 1988 assistance is necessary to
continue the modernization program. In
particular, FY 1988 military assistance
will, inter alia, help enhance Portugal's
capacity to patrol vital sealanes, upgrade
its mixed NATO brigade, and increase
the readiness of its fleet.

In conclusion, the importance of
Spain and Portugal to the overall NATO
security posture is fundamental. The
Portuguese base at Lajes in the Azores
and the major Spanish air and naval
facilities we use are strategically placed
and vital to the Western defense effort,
especially the alliance's naval air and
infrastructure element. Our security
assistance to Spain and Portugal is
money well spent, as it promotes the
interests of the United States, as well as
those of Spain and Portugal and the
NATO alliance to which we all belong.

MAR. 3, 1987

I welcome this opportunity to speak with
you about our policy toward Greece,
Turkey, and Cyprus and specifically our
FY 1988 foreign assistance request for
these countries.

Southeastern Europe is an area of
crucial importance to the United States.
Sustaining our vital national interests
there will require close cooperation
between the Administration and the
legislative branch. We have a record of
achievement together to live up to— 40
years ago we launched the Truman doc-
trine in response to the threat to
freedom in Greece and Turkey. It suc-
ceeded in large measure because it
enjoyed strong, bipartisan support here
on the Hill.

Today challenges to peace and
security persist in southeastern Europe.
I would like today to review our inter-
ests and objectives there, the dilemmas
we face, and the proposals we have for
assistance tailored to our own interests
as well as to the unique needs of each of
the three countries concerned.

I understand that the subcommittee
also wants to look today at foreign
assistance for Ireland and Poland. I will
have short statements about those pro-
grams as well.

U.S. Interests

Let me begin by discussing briefly the
importance of southeastern Europe.

America's relations with south-
eastern Europe span the full range of
security, political, economic, and cultural
interests. Those interests fall into two
broad categories— our established rela-
tionships with old friends and our
specific national security interests.

Our security interests in the region
are familiar facets of testimony before
this committee. A great deal can be said
about the significance of Greece and
Turkey in the eastern Mediterranean
and southeastern Europe, about
Turkey's long borders with the Soviet
Union, about the vital role of the
Bosporus and about the military impor-
tance of our facilities in Greece and
Turkey. I would stress that recent
advances in missile weaponry have not
diminished the region's strategic impor-
tance. The pro-Western orientation of
Greece and Turkey remains crucial to
our own defense.

The proximity of the area to the Mid-
dle East adds to its strategic impor-
tance. For Europe the region forms both
a bridge and a buffer with respect to the
Middle East. A strong and prosperous
southeastern Europe is a stabilizing
factor in the region and an essential
bulwark against extremism. Conversely,
weakness in southeastern Europe will
surely encourage, reinforce, and spread
the divisiveness and instability that has
shaken the Middle East, with tragic
consequences.

Fortunately we have well-established
friendships with all three countries in
this vital region, built on the strong
foundations provided by shared values
and mutually beneficial cooperation in a
variety of activities.

Two of these states, Greece and
Turkey, are our allies in NATO, and we
have much common and successful
experience with them. Our ties to Greece
reach far into our past. We identify our
own cultural heritage closely with
Greece, we have a strong and pros-
perous Greek- American community, and
over the last 40 years we have worked
closely with Greek Governments on
many issues. These are firm
underpinnings.

Our links with Turkey stretch well
back even before our independence, but

the bilateral relationship assumed major
significance after World War II. This
period of common endeavor has forged
bonds no less strong than those with
older friends. In recent years, we and
Turkey have explicitly reaffirmed mutua
desires to develop the relationship on the
broadest possible basis.

Cyprus is a democratic, nonaligned
state with which we maintain a cordial
and cooperative mutually beneficial rela-
tionship. The United States has a strong
and continuing commitment to help the
Greek and Turkish Cypriot communities
achieve reconciliation through a negoti-
ated settlement of their differences.

U.S. Objectives

Our objectives in southeastern Europe
are defined and shaped by the foregoing
interests.

First, we seek continued develop-
ment of strong and broadly based
bilateral relations between our country
and Greece, Turkey, and Cyprus. Each is
a good friend. It is in our interest to pur-
sue strengthened ties.

Second, we desire further strength-
ening of the NATO alliance and its
strategic southern flank: Greece and
Turkey lie on the front lines of our own
defense.

Third, we are working for a just and
lasting Cyprus settlement acceptable to
both Cypriot communities. There can be
no doubt that such a settlement would bf
of tremendous benefit to all nations in
the area and to our relations with them.
Nor can there be doubt that our close
ties with Greece and Turkey sustain our
ability to play a constructive role in the
search for a peaceful solution.

Fourth, we support resolution of the
differences between Greece and Turkey.
We deeply regret the tensions between
our two friends and allies. We have
urged the leadership of both nations to
renew efforts to find a basis for dialogue
and cooperation, and we stand ready to
help as and when we can.

Finally, we want to promote
vigorous democracies and dynamic
economies throughout the area. We are
fortunate that democracy is prospering
there and promises to continue despite
extremist trends nearby. Sound econo-
mies will help assure the strength and
permanence of free nations and their
institutions.

Dilemmas of Friendship

We believe that our objectives in the
region are mutually supportive. In fact,

Department of State Bulletin

EUROPE

lit is necessary that we pursue all of them
If we are to achieve any one. This is good
theory but difficult to put into practice.

The fact is that tension between
Greece and Turkey cuts across our inter-
ests and presents us with recurrent
dilemmas and difficult choices. Actions
pn our part to support one country indi-
vidually can be misperceived as under-
cutting the other, or as a reflection of
hilt in our policy. As members of NATO,
the U.S. Government and the other
nember states must contribute to solu-
tions that adhere to recognized prin-
ciples and do not diminish the efficiency
imd effectiveness of that alliance.

We must and will continue, there-
fore, to work for reconciliation between
Greece and Turkey. We seek to play a
Constructive role and to preserve stabil-
ity between the two while working
i.oward resolution of differences. For the
iJnited States— and we believe for our
■lilies— this requires that we not choose
petween Greece and Turkey in parochial
■ lisputes nor try to impose solutions from
Jmtside when there is no lasting basis for
Acceptance. The totality of our own
interests argues for patient, persistent
•fforts with an eye always to the long

Afferent Countries, Different Needs

n framing our policies, we find it imper-
itive to take into account the very dif-
erent needs of each of our friends. The
lifferences are striking. Turkey, for
jxample, has a per capita income of
ibout $1,000 a year; Greece well over
53,000 per year; in Cyprus, the Greek
Cypriot area over $4,400; and the
Turkish Cypriot area just over $1,000.
Turkey and Greece are at very different
stages of economic development, and
jreece derives extensive benefits from
nembership in the European Com-
nunities. As for military considerations,
;he fact that Turkey borders the Soviet
Union, Iran, Iraq, Syria, and Bulgaria
ntroduces special security concerns
ivhich underlay the acute need to
nodernize its military forces.

Prime Minister Ozal has emphasized
that he would prefer "trade not aid."
His approach recognizes that a nation's
underlying strength rests on a strong,
self-sustaining economy rooted in private
ienterprise. We want to do more to help,
ibut it will take time. One positive
development was the signature in
Washington last year of the bilateral
investment treaty (still pending United
I States Senate approval). In the mean-
time, Turkey is one of the few countries
iwith which we have a very substantial

trade balance in our favor, and this at
a time when Turkey faces a period of
major foreign debt repayments.

The economic dimension of our
relationship is also very important to
Greece. For example, the very low level
of foreign investment is a major aspect
of the country's persistent and con-
siderable economic difficulties. We are
holding a series of talks with Greek
officials on ways to improve the situa-
tion. I mention this activity to illustrate
the importance of tailored programs and
appropriate mixes of economic measures
and security assistance to help our
friends in southeastern Europe.

Congress in recent years has held
that notwithstanding the differing
military and economic requirements,
there should be a 7-10 ratio of security
assistance for Greece and Turkey. This
Administration continues to oppose any
such artificial constraint. This is not
new; it has long been our position that
imposing a ratio is simply not an effec-
tive way to tailor resources to the
requirements of two such different coun-
tries. Nor will such a ratio assure any
particular military balance since this is a
function of many other factors as well.

Let me say a few words here about
one of the most frustrating and perplex-
ing of our dilemmas— the Cyprus prob-
lem. I would like to review briefly the
status of peacemaking efforts and recap
the principal elements of our approach.

Mandated by the UN Security Coun-
cil, the UN Secretary General has sought
to engage the Greek and Turkish Cypriot
communities in negotiations leading to a
just and lasting settlement. With our
strong support, Secretary General Perez
de Cuellar has persevered with his dif-
ficult mission. Since he launched his
Cyprus initiative in 1984, he has sought
as a key step forward the conclusion of a
framework agreement which would pro-
vide an outline and a process for pro-
ceeding to a settlement. In January
1985, a first draft agreement was
accepted only by the Turkish Cypriots,
while in April 1985, a revised draft was
accepted only by the Greek Cypriots. In
March 1986, he presented a new draft
framework agreement to the two sides,
which was accepted by the Turkish
Cypriots but not by the Greek Cypriots.
The Greek Cypriots instead proposed as
alternatives an international conference
or a high-level Cypriot meeting to
address the issues of most importance to
them. An impasse has resulted. The
Secretary General is seeking at this time
to renew the momentum in the search
for a peaceful settlement. Senior UN
Secretariat officials visited the island in

early February to suggest new proce-
dural ideas to help move the process
forward.

We do not give our support to the
Secretary General lightly or just because
it is an easy and convenient out for us.
Rather we have high regard for his per-
sonal engagement in Cyprus issues over
many years, and we remain convinced
that his approach is the most promising.
It builds on agreements previously
reached between the parties and offers
an ongoing process for negotiations,
whether direct or indirect. It is predi-
cated not on the imposition of a solution
but on eliciting what is acceptable to the
two Cypriot communities.

These elements of the Secretary
General's approach are consistent with
our own. Promoting a just and lasting
resolution of the Cyprus problem is a
high priority objective of this Admin-
istration. We have urged all parties to
cooperate with the Secretary General at
this crucial juncture.

Turkey

Let me now focus on our strengthening
relationship with Turkey. Prime Minister
Ozal's recent private visit highlighted
the progress made since 1985 when
Secretary Shultz directed a broad review
of our bilateral relationship. Turkey
itself has continued major advances in its
economic and political development.

The Secretary's visit to Turkey in
March 1986 confirmed the momentum of
Turkey's drive for stable democracy and
modernization. Turkey has, indeed, con-
tinued to make great strides in this
direction, a movement that has been
noted by others besides ourselves. We
have been pleased to note such develop-
ments over the past year as progress on
normalizing the Turkey-EC association
agreement, assumption by the Turkish
Foreign Minister of the chairmanship of
the Council of Europe's ministerial coun-
cil, and resolution of the European
human rights inquiry.

Perhaps this is the best place to say
a word about the resolution recently
introduced in Congress on the historical
tragedy of the Armenians. We strongly
oppose this resolution, partly because of
antiterrorist considerations, and in large
measure because, however the wording
is framed, it will inevitably be construed
as blaming modern Turks for the tragic
suffering and deaths of Armenians 70
years ago. We do not believe this is the
way to treat a friend and key NATO
ally. Moreover, passage of the resolution
is more likely to hinder than encourage
the process of modernization and liberal-

iMay 1987

EUROPE

ization now underway in Turkey. Our
focus should be on promoting reconcilia-
tion between Turks and Armenians.

We have successfully concluded talks
on the future of our joint use bases in
Turkey, under the rubric of the 1980
defense and economic cooperation agree-
ment. Last December in Ankara, the two
sides agreed in principle to extend the
initial 5-year term of the agreement for
a second 5 years through December 1990.
Continued U.S. security assistance on
the best possible terms, economic
assistance, defense industry cooperation,
promotion of private sector economic
relations, and intensified political
dialogue all have roles to play in this
context. The Government of Turkey has
pledged to reciprocate U.S. efforts to
develop further our bilateral coopera-
tion. The English and Turkish tests of
this agreement are currently under final

review and shortly will be notified to
Congress in accordance with the Case
act.

Assistance Requests for Turkey

In our 1987 supplemental aid request,
we have asked for $125 million for Tur-
key. We believe this amount reasonable
and justified to carry forward essential
modernization programs. Since FY 1985,
Congress has cut back drastically on our
military assistance to Turkey. Levels
have fallen from $700 million in FY 1985
to only $490 million in FY 1987 against
the $820 million we had requested. The
supplemental is intended to make up
part of the ground lost over the past 2
years. Obviously failure to meet our
understandings raises questions about
our commitment, our ability, or our will-
ingness to do what we say we will try to
do when we are at a negotiating table.

U.S., Turkey Extend